In a significant judgment, the Karnataka High Court, comprising Chief Justice N. V. Anjaria and Justice K. V. Aravind, ruled that once parties have mutually agreed to resolve disputes through arbitration, it is unnecessary for the court to determine whether the partnership is "at will." The court emphasized that such issues should rightly be left to the arbitrator.
The case arose from a dispute between N. H. Gowda and respondent Nos. 1 and 2, all of whom were partners in M/s North City Ventures, formed under a partnership deed dated August 22, 2022. Initially, respondents each held a 30% share, while the appellant and one Girish M each had 20%. However, after Girish M retired on August 23, 2024, the firm was reconstituted with respondents holding 36.67% each and the appellant holding 26.66%.
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The firm developed land owned by the appellant’s family in K.G. Lakkenahalli, Bengaluru North, into a wedding and event venue named “Kalyani Vasti and De Destino.” Disputes emerged over the management and financial control of the firm, prompting the appellant to issue a notice under Section 43 of the Indian Partnership Act, 1932, stating his intention to dissolve the firm, asserting it was a partnership "at will."
Both sides invoked the arbitration clause in the partnership deed. Consequently, separate applications were filed under Section 9 of the Arbitration and Conciliation Act, 1996—Com.A.A.No.8 of 2025 by the appellant and Com.A.A.No.7 of 2025 by the respondents. The Commercial Court directed both sides to participate in the firm's operations without granting exclusive control to either party.
The appellant argued that since the firm was a partnership at will, his notice under Section 43 automatically dissolved it. He claimed that allowing the respondents to continue operating the firm would be unlawful and suggested that a receiver be appointed to manage the business until an arbitrator was formally appointed.
Conversely, the respondents submitted that while the appellant contributed the land, they had built the entire infrastructure and invested their expertise to develop the venue. They argued that the appellant’s involvement, as allowed by the Commercial Court, would disrupt the business’s normal functioning.
They also contended that the nature of the partnership—whether it was "at will" or not—should be determined based on the agreement as a whole.
Taking these arguments into account, the High Court observed:
There is no dispute between the parties that any issue arising from the partnership shall be resolved through arbitration.
The bench stated that the question of whether the partnership is "at will" is an arbitrable issue and does not require the court’s immediate intervention. It stressed that analyzing such a matter would intrude upon the jurisdiction reserved for the arbitrator.
"Since both parties have expressly chosen arbitration, it is inappropriate for the court to delve into the merits of the partnership’s nature."
The High Court also noted that the interim arrangement ordered by the Commercial Court was impractical and risked further legal complications. It emphasized the need for a balanced interim solution to protect the interests of both parties and maintain the smooth functioning of the business.
Accordingly, the court appointed Justice V. Jagannathan, former Judge of the High Court, as the sole arbitrator by mutual consent, who will begin proceedings at the Bengaluru Arbitration Centre. Additionally, Shri H.R. Srinivas, a retired Principal District and Sessions Judge, was appointed as a receiver to manage the accounts of M/s North City Ventures. The court directed both parties to immediately submit all financial documents to the receiver, who will maintain and share the accounts quarterly.
"All bookings for the venue must be processed through the receiver, and details of any prior bookings must be disclosed. The respondents’ services concerning bookings will be limited to financial coordination through the receiver."
The court clarified that this interim setup would remain effective during the arbitration process. Once the arbitration concludes, the receiver will hand over the accounts in accordance with the final arbitral award.
The appeals were accordingly partly allowed.
Case Title: N. H. Gowda Versus Mr. Rangarama And Ors.
Case Number: 2025:KHC:15329-DB
Date of Judgment: 09 April 2025
Advocates:
For Appellant – K.N. Phanindra, Senior Advocate with Sri Prashanth Kumar D.
For Respondents – N. Basavaraju, Senior Advocate with Sri Vijay B. K.
