Summary
The Supreme Court held that an arbitration clause in a partnership deed binds and benefits the legal heirs of a deceased partner even though they did not sign the deed, because under Section 40 of the Arbitration and Conciliation Act, 1996 an arbitration agreement survives a party's death and the right to sue for rendition of accounts survives to the heirs. The High Court's order referring the dispute to arbitration under Section 8 was upheld.
Issues
- Whether the legal heirs of a deceased partner, as non-signatories to the partnership deed and without their explicit consent, are bound by the arbitration clause in the deed.
- Whether the right to sue for rendition of accounts survives to the legal heirs of a deceased partner so as to entitle them to invoke the arbitration clause.
Provisions considered
- Section 40, Arbitration and Conciliation Act, 1996Read as providing that an arbitration agreement is not discharged by the death of a party and remains enforceable by or against the legal representatives of the deceased. The Court held that the arbitration clause in the partnership deed therefore operated between the surviving partner and the heirs of the deceased partner. (¶¶ 8, 10, 11)
- Section 2(1)(g), Arbitration and Conciliation Act, 1996The definition of 'legal representative', as explained in Ravi Prakash Goel, supported the conclusion that persons representing the estate of a deceased party are bound by and entitled to enforce the arbitration agreement. (¶ 8)
- Section 8, Arbitration and Conciliation Act, 1996The respondents' application under Section 8 for reference of the commercial suit to arbitration, dismissed by the trial court but allowed by the High Court in appeal, was the subject of the challenge; the Court found no error in the High Court's order. (¶¶ 3, 4, 12)
- Section 37(1)(a), Arbitration and Conciliation Act, 1996Noted as the provision under which the High Court entertained the appeal against the refusal to refer the parties to arbitration. (¶ 1)
- Section 42(c), Indian Partnership Act, 1932The High Court had held that since the deed itself provided for the situation on a partner's death and for arbitration of disputes about dissolution, Section 42(c) did not prevent reference to arbitration; the Supreme Court found no error in the impugned judgment. (¶¶ 5, 12)
Held
- The question is covered by Ravi Prakash Goel v. Chandra Prakash Goel, (2008) 13 SCC 667: an arbitration agreement does not cease on the death of a party and can be enforced by or against the legal representatives of the deceased, provided the right to sue survives. (¶ 8)
- The term 'partners' in a partnership deed extends to their legal heirs, representatives, assigns and legatees; persons claiming under a deceased partner may enforce, and are bound by, the arbitration agreement and award, and a reference only to disputes between 'partners' does not exclude the heirs. (¶¶ 9, 10)
- Since the arbitration agreement survives the death of a party under Section 40, the right to sue for rendition of accounts also survives, so the legal representatives can assert or defend claims arising from the partnership agreement through arbitration. (¶ 10)
- The heirs of the deceased partner having stepped into his shoes, the arbitration clause (clause 15) of the partnership deed bound both the petitioners and the respondents, and the High Court committed no error in allowing the Section 8 application. (¶¶ 11, 12)
Result
Special leave petition dismissed; parties to bear their own costs.