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Synopsis

The Supreme Court recently allowed an arbitration application in a partnership dispute, emphasizing the importance of interpreting arbitration clauses pragmatically and in line with the intent of the parties.

A bench comprising Chief Justice of India Sanjiv Khanna and Justice Sanjay Kumar examined the arbitration clause in the partnership deed dated July 16, 2016. The court clarified that the clause was not optional or contingent upon mutual consent for initiating arbitration but provided a clear mechanism for resolving disputes.

The bench observed that the first part of the arbitration clause explicitly stated that disputes arising during the partnership or after the retirement of any partner must be referred to arbitration. It further noted that legal representatives or successors of the partners were also entitled to invoke this clause.

In the present case, Tarun Dhameja, the legal representative of deceased partner Yeshwant Boolani, invoked the arbitration clause. The dispute arose over whether the second portion of the clause, which mentioned arbitration as "optional" and required mutual consent for appointing an arbitrator, limited its applicability.

The court rejected a narrow interpretation, stating that the second part must be read in the context of the entire clause. It clarified that while mutual agreement is necessary for appointing an arbitrator, the arbitration clause itself remains enforceable. "This does not obliterate or write off the arbitration clause," the bench underscored.

Citing provisions of the Arbitration and Conciliation Act, 1996, the court noted that in cases where parties fail to agree on an arbitrator, the court can step in to appoint one. Accordingly, it allowed the petition filed under Section 11(6) of the Act by Tarun Dhameja.

"In terms of the Arbitration and Conciliation Act, 1996, where parties cannot agree upon a common name as to who will act as an arbitrator, the court can appoint the arbitral tribunal. The arbitration clauses have to be read in a pragmatic manner. The intent of the parties while executing the arbitration clause in the Partnership Deed is clear", the bench said.

The bench directed the Coordinator or Chairman of the Madhya Pradesh Arbitration Centre, or the High Court of Madhya Pradesh's Arbitration Centre at Indore, to appoint an arbitrator for adjudicating the dispute. The appointed arbitrator is required to file a declaration under Section 12 of the Arbitration Act within 15 days of their appointment, and their fees will be determined as per the Fourth Schedule of the Act or by the Arbitration Centre.

Case Title: Tarun Dhameja v. Sunil Dhameja & Anr