The Madhya Pradesh High Court has held that matters relating to the Partnership Act and a partnership deed involving third-party rights cannot be referred to arbitration.

The Court dismissed an Application under Section 11(4) of the Arbitration and Conciliation Act, 1996 (the Act) for the appointment of an Arbitrator in a dispute regarding the bifurcation of shares in an immovable property belonging to a registered partnership firm.

A Single Bench of Justice Anand Pathak ordered, “It is indeed true that scope of enquiry having the trappings of adjudication is limited at the stage of application under Section 11 of the Act of 1996 but Court can certainly determine existence of arbitration agreement and also to enquire whether there is prima facie arbitration dispute or not.

Advocate Anmol Khedkar represented the Applicant, while Advocate Somyadeep Dwivedi appeared for the Respondents.

The Applicant sought a division of 13% of his share in the immovable property belonging to the partnership firm, into metes and bounds.

Court’s Reasoning

The High Court held that the contention of the Respondent that the Applicant cannot seek prayer for a physical share in the property of the partnership firm without praying for retirement from the firm or for its dissolution was correct because “in that condition only entitlement of a partner upon severance of status of the partnership firm would be of money equivalent to the value of his share therein. Therefore, demand of applicant is prohibited in law and appears to be a dead wood claim.

The Court referred to the decision in Vidya Drolia v. Durga Trading Corporation (2021), wherein the Apex Court held that reference should be refused when third-party rights are likely to be affected. In the present case, the Bench pointed out that the tenants were not signatories to the partnership deed which contained the arbitration clause and therefore, they could not be bound by any award emanating out of prospective arbitration proceedings.

The Bench also referred to the decision in NTPC Ltd. v. M/s SPML Infra Ltd., wherein the Supreme Court held that it is the duty of the referral court to “protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable.

Consequently, the Court held, “Therefore, in the considered opinion of this Court when matter relates to Partnership Act and partnership deed and third party rights are also involved then it cannot be referred to arbitration. Applicant may resort to other remedy in accordance with law. Hence, the application preferred for appointment of arbitrator is hereby dismissed.

Accordingly, the High Court dismissed the Application.

Cause Title: Gokul Bansal v. Vipin Goyal & Ors.

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