Case: – Shailesh Ranka and others v/s Windsor Machines Limited and another; Commercial Arbitration Application (L) No.38198 of 2022
The High Court of Bombay, in the above-mentioned case, has delivered a significant ruling on the authority of partners in a firm to refer disputes related to business for arbitration. The court, emphasized that a partner acting alone cannot unilaterally initiate arbitration proceedings without the consent of other partners, citing Section 19(2)(a) of the Partnership Act, 1932.
The case originated from an investment agreement dated 02.02.2018, involving the applicants, Respondent No.2, and Respondent No.1 company. The agreement outlined a substantial investment for the development of technology acquired by R-Cube Energy Storage Systems LLP. Disputes arose when Respondent No.1 defaulted on its obligations, leading to the threat of legal action. The Applicants sought resolution through arbitration, invoking Clause 24 of the investment agreement.
Respondent No.1 raised objections, arguing non-compliance with pre-arbitration steps and asserting that arbitration notice and the petition were filed without the consent of Respondent No.2, a partner in the firm. The court acknowledged the efforts of the applicants in the dispute resolution process and rejected the objection related to pre-arbitration steps.
However, the Hon’ble Court delved into the crucial issue of partner authority. It held that a partner’s implied authority doesn’t extend to unilaterally initiating arbitration proceedings, especially when the dispute concerns the firm’s business. The Court emphasized Section 19(2)(a) of the Partnership Act, 1932, stating that a dispute related to the business of the firm cannot be referred to arbitration by a single partner without the involvement of other partners.
The Hon’ble Court further ruled that an arbitration notice issued without the consent of all partners is invalid, rendering the petition for the appointment of an arbitrator also invalid. Consequently, the court dismissed the application under Section 11 of the Arbitration Act, asserting that a defective notice cannot be the basis for a cause of action.
This judgment from the Bombay High Court provides clarity on the limitations of a partner’s authority in initiating arbitration proceedings, reinforcing the principle that decisions affecting the firm’s business require the consent of all partners.
Author of this article:
Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate
Connect with Mr. Bhatt on Linkedin: https://www.linkedin.com/in/adit-ravishbhatt/
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