The Bombay High Court, comprising Justices A.S. Chandurkar and Rajesh S. Patil, ruled that an Arbitrator’s decision to postpone determining the dissolution date of a partnership firm until the final hearing was not perverse. The court emphasized that such a determination requires an evidentiary basis, falling within the Arbitrator’s authority under the Arbitration and Conciliation Act, 1996.
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Background of the Case
The dispute arose from four partnership deeds executed on January 16, 1996, between three partners, each holding an equal 33.33% share. The partnership firms were engaged in manufacturing and trading textile fabrics. Arbitration clauses were included in the agreements, leading to arbitration proceedings when conflicts emerged between the partners.
Following a dissolution notice issued by the appellants on April 4, 2008, citing the partnerships as "at will," the respondent contested this claim through a reply dated April 10, 2008. Consequently, the matter was referred to arbitration. The Sole Arbitrator passed an interim award on December 3, 2022, deciding to consider the dissolution date at the final hearing. This award was upheld by the Single Judge of the Bombay High Court on April 20, 2023, leading to the present appeal under Section 37 of the Arbitration Act.
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The appellants contended that:
- A partnership-at-will allows any partner to dissolve the firm at their discretion, rendering Section 40 of the Partnership Act inapplicable.
- Clauses 13 and 14 of the partnership deeds did not establish an intent for the firms to continue beyond a partner’s death or retirement.
- With two out of three partners issuing a dissolution notice, the firm ceased to exist as of April 8, 2008.
- The Arbitrator erred in deferring the dissolution determination while simultaneously rejecting the firm's status as "at will."
The respondent countered that:
- The Arbitrator’s interpretation of the partnership deed was not perverse, and the firms were not "at will."
- The appellants themselves had sought a judicial determination of the dissolution date in their counterclaim.
- No arguments were advanced regarding an alternative dissolution date if the firms were not found to be "at will."
- The intent of the partnership agreement was for the business to continue with surviving partners or the legal heirs of deceased partners.
The Bombay High Court held that:
- The Arbitrator’s decision to consider the dissolution issue at the final hearing was reasonable given the complexity and need for evidentiary assessment.
- Clause 13 dealt with partner retirement, and the absence of a duration clause did not automatically render the firm "at will."
- The appellants actively participated in arbitration for over 12 years before contesting the dissolution issue at the final hearing stage.
- As per the Supreme Court’s ruling in Wander Limited v. Antox India Pvt Ltd (1990), appellate courts should not reassess material or substitute their view unless the lower court’s decision was arbitrary or perverse.
- The Arbitrator’s decision was not capricious, and the High Court lacked grounds to interfere under Section 37 of the Arbitration Act.
