Summary
An arbitration clause in a partnership deed saying that arbitration 'shall be optional' and that the arbitrator will be appointed by mutual consent does not make the clause non-existent or dependent on every party agreeing to arbitrate. Read as a whole, it lets an aggrieved party, including a deceased partner's legal representative, invoke arbitration, and the court may appoint the arbitrator if the parties cannot agree. The Section 11(6) petition was allowed.
Issues
- Whether a partnership-deed clause stating that arbitration 'shall be optional' and that the arbitrator will be appointed by the partners' mutual consent is a binding arbitration agreement or only an enabling clause requiring every party's agreement.
- Whether the legal representative of a deceased partner can invoke the clause.
- Whether the court can appoint an arbitrator under Section 11(6) when the parties do not agree on one.
Provisions considered
- Section 11(6), Arbitration and Conciliation Act, 1996Where the parties cannot agree on who should act as arbitrator, the court can appoint the tribunal; the requirement of appointment by mutual consent does not wipe out the arbitration clause. The appellant's Section 11(6) petition was treated as allowed and the arbitration centre attached to the High Court was directed to appoint an arbitrator.
- Section 12 and Fourth Schedule, Arbitration and Conciliation Act, 1996The appointed arbitrator was directed to file the Section 12 disclosure within 15 days of appointment, with fees fixed by the centre or paid as per the Fourth Schedule as applicable.
Held
- An arbitration clause must be read as a whole and pragmatically, in light of the parties' evident intent. The first part of the clause, which says any dispute between the partners, their heirs or anyone claiming through them 'shall be referred to arbitration', is clear, so a deceased partner's legal representative is entitled to invoke it.
- The words making arbitration 'optional', with the arbitrator to be appointed by mutual consent, cannot be read in isolation. They mean that an aggrieved party who wishes to arbitrate may invoke the clause, and the parties have agreed to that extent. They do not make the clause non-existent or require all parties to agree to the reference.
- The requirement that the arbitrator be appointed by mutual consent does not defeat the clause, because under the 1996 Act the court can appoint the arbitral tribunal where the parties cannot agree on a name.
- Wellington Associates Ltd. v. Kirit Mehta and Jagdish Chander v. Ramesh Chander were distinguished because their facts were different and their clauses were worded differently; Wellington Associates also arose under the Arbitration Act, 1940.
Result
Appeal allowed; High Court judgment set aside; the appellant's Section 11(6) petition treated as allowed. The Madhya Pradesh Arbitration Centre (or the centre attached to the High Court at Indore) is to appoint an arbitrator, who must file the Section 12 declaration within 15 days. No view expressed on the merits.