Introduction
In a recent decision of Rahul Verma & Ors. v. Rampat Lal Verma & Ors.1 the Hon'ble Supreme Court of India reaffirmed the principle that arbitration agreements do not cease to exist upon death of a party and can be enforced by or against the legal representatives of the deceased partner.
Facts of the Case:
The case stemmed from a dispute between a partner of a partnership firm and legal heirs of two deceased partners. At the time when the original commercial suit was pending, the Respondents (also the original Defendants) preferred an application under Section 8 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") before the Commercial Court at Dibrugarh, for dismissal of the suit and a reference to arbitration. The said application was dismissed by the Ld. Civil Judge. Aggrieved by the said dismissal, the Respondents preferred an arbitration appeal before the High Court of Gauhati vide which the High Court held that a reading of clause 2 of the partnership deed made it evident that the partnership deed was binding upon the heirs of the deceased partner. The High Court further observed that clause 15 of the partnership deed specified the circumstances under which the parties may resort to arbitral proceedings, holding that dispute between the parties pertained to the affairs of the partnership firm, specifically its dissolution. Since this particular circumstance was addressed in the partnership deed itself, Section 42(c) of the Partnership Act, 1932 would not impede the court from referring the matter to arbitration. Thus, the legal heirs of the deceased partner were held entitled to invoke the arbitration clause and the sole surviving partner could also invoke the arbitration clause against the legal heirs of the deceased partner. Aggrieved by this ruling of the High Court, the Petitioner approached the Supreme Court of India.
Issues posed before the Supreme Court
The Supreme Court, based on the facts and the submissions, framed the following two issues, for its consideration:
- Whether the legal heirs of a deceased partner in a partnership firm, being non signatories to the partnership deed and in the absence of their explicit consent, can still be bound by the arbitration agreement prescribed therein?
- Whether the right to sue for the rendition of accounts survive to the legal heirs of the deceased partner, entitling them to invoke the arbitration clause in the partnership deed?
Analysis of the Supreme Court
The Supreme Court, while analysing the aforementioned issues laid emphasis on the decision of the Supreme Court in the case of Ravi Prakash Goel v. Chandra Prakash Goel & Anr.,2 in which it was held that an arbitration agreement does not cease to exist on the death of any party and the arbitration agreement can be enforced by or against the legal representatives of the deceased. The court made reference to the definition of a 'legal representative' under Section 2(1)(g) and section 40 of the Arbitration Act which clearly states an arbitration agreement is not discharged by the death of a party. The agreement remains enforceable by or against the legal representatives of the deceased. The Court opined that a person who has the right to represent the estate of the deceased person automatically occupies the status of a legal person. The Court went on to hold that while right to sue for rendition of accounts of partnership firm survives on the legal representative of a deceased partner, he is also entitled to invoke the arbitration clause contained in the partnership deed.
The Supreme Court further referred to the decision in Jyoti Gupta v. Kewalsons & Ors.,3 wherein the High Court of Delhi also held that an arbitration agreement does not stand discharged on the death of a partner and it can be enforced by the legal heirs of the deceased-partner. The Court further held that merely because the arbitration agreement refers to the disputes between 'partners', the same cannot debar or take away the right of enforcement of such an arbitration agreement vested in the legal heirs of the deceased partner in view of Section 40 of the Act.
Therefore, in view of the aforesaid judgments, the Supreme Court held that the term 'partners' extends to and would include their legal heirs, representatives, assigns or legatees, etc. In light of Section 40 of the Act the existence of an arbitration agreement is not affected by the death of a party to the arbitration agreement, as a consequence of which, the right to sue for rendition of account also survives, ensuring that the legal representatives can assert or defend claims arising from the partnership agreement. Thus, the Supreme Court, in view of the above legal analysis, held that since the legal heirs in the case at hand have stepped into the shoes of the deceased, clause 15 of the partnership agreement will operate to bind both the petitioners and the respondents; and that the High Court has not committed any error in passing the impugned judgment.
Conclusion
The judgment reinforces the legal position that arbitration agreements within partnership deeds are binding on the legal heirs of deceased partners. It provides clarity on the rights of legal heirs and reaffirms the importance of clearly drafted partnership agreements and inclusion of well-defined arbitration clauses.
Footnotes
1 Special Leave to Appeal (C) No. 4330/2025
2 (2008) 13 SCC 667.
3 2018 SCC OnLine Del 7942.
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