Priya Rishi Bhutra & Anr v. Vardhaman Engineers and Builders & Ors

Arbitration Application No 149 of 2021 with Commercial Arbitration Petition No 410 of 2021 (along with 3 other applications)

Background facts

  • In the present case, four applications under Section 11 of the Arbitration and Conciliation Act, 1996 (Act) were heard together. The Applicants are the daughters of the erstwhile Partner of a Partnership firm i.e. the Respondent No. 1, which was reconstituted by a Partnership Deed dated March 12, 2012 (First Deed). Clauses 17 and 19 of the said deed provided for passing on of interest in the firm, upon death of a partner, to his/her heirs, and for referring disputes to arbitration, respectively.
  • The parents of the Applicants passed away in October 2018, and their respective shares in the partnership firm were distributed between the brothers of the Applicants, namely Respondent No. 2 and Respondent No. 3 vide a Deed of Retirement-cum-Partnership on January 17, 2019 (Second Deed). Clauses 17 and 19 of this deed were similar to the First Deed. Further changes were made to the Partnership vide a 'Deed of Retirement-cum-Partnership' dated May 23, 2019 (Third Deed), but Clauses 17 and 19 still remained the same.
  • The Applicants filed a Civil Suit before the present Court inter alia against Respondent No. 2 and Respondent No. 3 for administration and partition of the estate of their deceased parents. The Applicants also invoked the arbitration agreement contained in Clause 19 of the First Deed, claiming that upon their parents' death, they were entitled to their parents' interest in the firm under Clause 17 thereof.
  • The Applicants asserted that they had the locus as the legal heirs of deceased partners to invoke the arbitration agreement contained in Clause 19 of the First Deed, and that under Clause 17, the legal heirs of a deceased partner were to be inducted as partners in the firm. It was stipulated that only when a deceased partner had no legal heir, the share of the deceased partner could go to the existing partners; thus, the usurpation of their parents' share by their brothers (Respondent No. 2 and 3) who were already partners in the firm, violates clause 17. The Applicants also claimed that the civil suit filed by them was different in subject matter to the dispute pertaining to the partnership firms.
  • In response, the Respondents contended that the Applicants were not parties to the Arbitration Agreement contained in Clause 19 of the First Deed and thus could not invoke arbitration. It was also contended that the civil suit filed by the Applicants effectively bars them from seeking reference to arbitration.

Issue at hand?

  • Whether the applicants have any arbitral interest to invoke the arbitration agreement as contained in the First Deed?

Decision of the Court

  • The HC noted that the legal heirs of deceased partners were referred to as partners in the firm in the opening paragraph of the Partnership Deed. Furthermore, it was noted that Clause 17 of the First Deed states that in the event of the death of a partner, the legal heir of that partner would be inducted as the new partner and Clause 19 thereof also recognizes the right of a legal heir of a partner to bring any dispute to arbitration for the purpose of having it resolved.
  • Upon analyzing the provisions of the First Deed, the HC determined that the Applicants, are recognized by the First Deed, who are conferred an interest in the partnership firm in the capacity as legal heirs. The HC held that such a right is recognized under three different provisions of the partnership agreement, namely the introductory paragraph, Clause 17, and Clause 19 of the First Deed. Therefore, upon a cohesive reading of all the aforesaid 3 clauses, the HC stated that it is clear that the legal heir of a deceased partner may invoke the arbitration clause for the resolution of any dispute or disagreement by virtue of the First Deed. Furthermore, relying on Section 40 of the Act, the HC affirmed that arbitration agreements can be enforced by their legal heirs in the event of a party's death.
  • Thereafter, the HC determined that the subject matter of the Civil Suit was completely different from the subject matter of the current Application, and that the Civil Suit and the current Application were for the enforcement of different sets of the Applicants' rights. As a result, rejecting the Respondents' argument, the Hon'ble Court held that the Applicants would not be barred from seeking reference to arbitration even if they had filed a Civil Suit, because the Applicants' rights as legal heirs of their deceased parents' estate are entirely distinct from the legal heirs' rights recognized by the First Deed.
  • The HC ruled that the Petitioner's filing of a Civil Suit over the same dispute could not be an absolute bar to the appointment of an arbitrator. In view of the above, the HC allowed the present Applications as the right of the Applicants to take recourse to arbitration is clearly relatable and recognized under Clause 19 read with Clause 17 of the First Deed and, therefore, appointed a Sole Arbitrator to adjudicate upon the disputes which had arisen between the parties.


Section 40 of the Act clearly states that an arbitration agreement does not come to an end on the death of any of the parties to it and may be enforced by the legal representatives of the deceased. Furthermore, Section 8(1) of the Act states that a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. The Hon'ble Court has rightly taken into consideration the provisions of the Act in its true letter and spirit and has thereby upheld the rights of the Applicant to seek reference to arbitration as legal representatives of the deceased. The Court was correct in differentiating between the subject matter of the Arbitration Application and the pending Civil Suit, because even though the rights sought to be enforced in the two matters were between the same parties, they arose from different legal positions held by the parties.

Backend Bangalore Pvt Ltd v. Chief Engineer-Cum-Project Director, Himachal Pradesh Road and Infrastructure Development Corporation Ltd

Arbitration Case No 61 of 2020

Background facts

  • An agreement was entered into between Backend Bangalore Pvt Ltd (Petitioner) and Chief Engineer-Cum-Project Director, Himachal Pradesh Road and Infrastructure Development Corporation Ltd (Respondent) for development of a web-based project management software for the Respondent.
  • For the purposes of the said services, the Petitioner raised three invoices, against which part payments were made for two invoices, whereas the Respondent failed to make any payment towards the due amount. Despite repeated follow ups, the Respondent defaulted in making the payments and instead gave assurances that the payments would be released, basis which the Petitioner continued to render the work under the Agreement.
  • To the utter shock of the Petitioner, the Respondent issued a notice for termination of the Agreement under its Clause 2.6.1, on the grounds that the Petitioner had failed to execute the complete works as was agreed between the parties. Subsequently, the Respondent proceeded arbitrarily to invoke the performance bank guarantee.
  • Aggrieved by the termination of the agreement and encashment of the performance bank guarantee, the Petitioner invoked the dispute resolution clause and issued a notice of arbitration to the Respondent. In response to this, the Respondent replied and did not concur with the name proposed by the Petitioner. In the said reply, the Respondent further contended that the reference to arbitration is pre-mature as the agreement provides for pre-arbitration reference to Adjudicator.
  • Thereafter, the Petitioner filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (Act) for appointment of the Arbitrator before the Hon'ble Himachal Pradesh High Court (HC).

Issue at hand?

  • Whether pre-arbitration reference to Adjudicator is a bar to the appointment of Arbitrator?

Decision of the Court

  • At the outset, the HC examined Clause 8 of the agreement which provided detailed procedure for settlement of disputes between the parties by reference to the Adjudicator within 14 days of the notice of disagreement of one party to the other. Accordingly, the HC opined that either of the parties could have taken the dispute to the Arbitrator since Clause 8 of the Agreement does not specifically provide for the Petitioner or the Respondent alone to approach the Adjudicator.
  • The HC opined that even if the named Adjudicator was not unilaterally proposed by the Respondent, the condition of referring the dispute first to the Adjudicator, cannot be taken as a bar for the Petitioner to raise the demand for referring the dispute to the Arbitrator, as in the facts of the case such a Clause can only be taken as directory in nature. Thus, the HC held that reference of dispute to the Adjudicator cannot be taken as condition precedent for making a reference to the Arbitrator, for two reasons i.e., the Respondent itself failed to refer the dispute to the Adjudicator, and secondly, it has strenuously contested the matter even before the HC on merits, which remained pending for more than one and a half years.
  • The HC then applied the analogy of the decisions in VISA International Ltd v. Continental Resources (USA) Ltd1 and Haldiram Manufacturing Company Pvt Ltd v. DLF Commercial Complexes Ltd2 and noted that the notice invoking the arbitration clause was pre-mature since the Respondent relied upon the said clause in its reply to the notice instead of referring the dispute to the Adjudicator and rather alleged that the Petitioner failed to refer the dispute to the Adjudicator. Thus, the HC held that the Respondent cannot be allowed to argue to exercise the option of terminating the agreement and that the compulsion would be on the Petition to refer the dispute after the Respondent's own failure to avail the opportunity to refer the dispute to the Adjudicator when it could also have within 14 days of the notification of disagreement i.e., when the Respondent declined to release the payments as claimed by the Petitioner.
  • The HC placed reliance on the judgments of Ravindra Kumar Verma v. BPTP & Anr3 and Sarvesh Security Services Pvt Ltd v. Managing Director, DSIIDC4 and held that the arbitration clause providing that the dispute is referred firstly to the Adjudicator and then to the Arbitrator has to be taken as only directory and not mandatory.
  • In light of the above, the HC held that the requirement of pre-arbitration reference cannot be held to be a mandatory condition for the invocation of arbitration and that such a stipulation in a contract is only directory. The HC further held that the Respondent could object to the maintainability of the Petition merely on the ground that pre-condition of reference to adjudicator was not complied with, if it had made efforts to settle the dispute, but instead, proceeded to terminate the agreement. The HC further held that the petition is pending for more than 1.5 years, and therefore no useful purpose would be served by relegating the parties to adjudication, and, thus, the HC allowed the Petition and appointed a sole Arbitrator.


This decision of the HC sheds light on the proposition that a pre-arbitration reference to an Adjudicator is only directory and not a bar to the appointment of an Arbitrator. The HC held that in the event, the parties are disputing and are unable to arrive at a decision to resolve their disputes, if an Application has been made to the HC for appointment of Arbitrator then it cannot be contested by the other party since such other party has failed to make any efforts to resolve the disputes by first referring to the Adjudicator. The disputing party failing to refer the matter to the Adjudicator cannot then raise an objection to the appointment of an Arbitrator made by the other party since there is an alternate option of appointing an Adjudicator first. Thus, this decision reiterates the legal position that pre-arbitration procedures are not mandatory. This decision makes it clear that when there is a contract which clearly provides the name of an Arbitrator containing the sign of the parties, then the appointment of an Arbitrator is not bad in law.

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1. (2009) 2 SCC 55

2. 193 (2012) DLT 410

3. 2015 (147) DRJ 175

4. Arbitration Petition No 181/2014 of Delhi High Court

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