The Bombay High Court has reiterated that referral court under Section 11 of Arbitration and Conciliation Act should restrict its scrutiny solely to the existence of an arbitration agreement.

The Court was considering a Petition under Section 11 of the Arbitration and Conciliation Act, 1996 seeking to refer disputes and differences that have arisen between the parties in connection with an agreement and another deed.

The single-bench of Justice Somasekhar Sundaresan observed, "All these are matters of evidence that only the Arbitral Tribunal would need to deal with. Be that as it may, these are prima facie observations only to repel the contention that an existential question about the agreement exists, and that too by reason of not being executed by a validly authorised person. I am not dissuaded, presiding over proceedings under Section 11 of the Act, from referring the disputes in these proceedings to arbitration."

The Petitioner was represented by Advocate Nishant Tripathi while the Respondent was represented by Advocate Abhishek Adke.

The primary opposition by the Respondents, to the reference by the Court to an arbitrator under Section 11 of the Act, were two-fold. First, that Respondent No. 2, the individual partner who executed the agreement on behalf of Respondent No. 1, which is a partnership firm, did not have any implied authority to bind the firm to the arbitration clause contained in these two instruments. Counsel for the Respondent submitted that executing any contract which has an arbitration clause in it, constitutes “submission of a dispute to arbitration” and executing such a contract would require an explicit authorisation, since Section -19(2)(a) of the Indian Partnership Act, 1933 provides that there can be no implied authority for a partner to submit a dispute relating to the business of the firm to arbitration.

The other issue was that a partner not having any implied authority to “submit disputes to arbitration” would have no implied authority to sign any agreement containing an arbitration clause and if f such an agreement is indeed signed, it would mean that the agreement in question was not validly executed, and therefore, that agreement does not exist. It was contended that for a partnership firm to sign any contract containing an arbitration clause, there ought to be an express authorization to the partner executing the said contract, in the absence of which, in view of Section 19(2) (a) of the Partnership Act, the Arbitration Agreement would not be in existence. It was further submitted on behalf of the Respondents, that the dispute on existence of an agreement cannot even be referred to an Arbitral Tribunal, unless the arbitration clause expressly places the determination of existence of an agreement as a matter of dispute that can be referred to arbitration. If the arbitration agreement does not expressly empower the Arbitral Tribunal to determine validity and existence of the agreement, according to him, such question is outside the jurisdiction of the Arbitral Tribunal.

The Court at the outset observed that it is trite law that the referral court under Section 11 of the Act ought to restrict its scrutiny in the course of such proceedings solely to the existence of an arbitration agreement. To this regard, the court referred to most recent Supreme Court ruing in "In re: Interplay Between Arbitration Agreements under A&C Act, 1996 & Stamp Act, 1899 wherein an entire chapter has been dedicated to the scope of the jurisdiction of Section-11 by a seven-judge bench of the Supreme Court.

"The Court exercising jurisdiction under Section 11 ought to restrict its scrutiny to ascertaining the existence of an agreement. The existential questions about whether the agreement that is seen as executed on the face of the record, in fact truly exists, and if it exists, whether it validly exists, would all be a matter of merits for consideration by the Arbitral Tribunal," the Court observed.

The Court stressed that all the issues that would pose mixed questions of fact and law and would relate to the substance of existence rather than the form of existence i.e. a written agreement should be determined by the Arbitral Tribunal only.

"An arbitration clause in a commercial agreement only means creation of a framework under which future disputes could be submitted in the future to arbitration. It is such decision to actually “submit” an actual “dispute” that has arisen in the course of business, that, prima facie, in my opinion, would attract the jurisdiction of Section 19(2)(a) of the Partnership Act. Section 19(2)(a) of the Partnership Act, prima facie, appears to be one that protects the partnership firm from a partner subjecting the firm to arbitration proceedings without consulting other partners. It could perhaps be regarded as a provision that prevents a partner from agreeing to opt for arbitration instead of pursuing litigation in Court, when faced with a dispute. There was an era when arbitration was considered inferior to court litigation, and opting for arbitration could have been seen as compromising what could be a stronger prospect for the firm in a Court. Doing so without consulting other partners, could be the scope of Section 19(2)(1) of the Partnership Act. Even in such situations, whether there is a custom or usage of trade, would also need to be examined," the Court observed.

The Petition was accordingly disposed off.

Cause Title: Shreegopal Barasia vs. M/s. Creative Homes & Ors. (2025:BHC-AS:726)

Appearances:

Petitioner- Advocate Nishant Tripath, Advocate Pranav Vaidya

Respondent- Advocate Rupesh Geete, Advocate Priya Danagt

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Bombay High CourtJustice Somasekhar Sundaresan

Sheetal Joon