Gauhati High Court
Sandeep Kumar Nahata vs Praveen Kothari on 5 August, 2025
Author: Soumitra Saikia
Bench: Soumitra Saikia
Page No.# 1/12
GAHC010003452025
undefined
THE GAUHATI HIGH COURT
(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)
Case No. : Arb.P./1/2025
SANDEEP KUMAR NAHATA
S/O SRI BIMAL KUMAR NAHATA, R/O NAHATA NIWAS, CHATRIBARI,
GUWAHATI-781008, DIST- KAMRUP (M), ASSAM
VERSUS
PRAVEEN KOTHARI
S/O SRI RAJENDRA KUMAR KOTHARI, R/O HOUSE NO. 26-A, M.S. ROAD,
FANCY BAZAR, GUWAHATI-781001, DIST- KAMRUP (M), ASSAM
Advocate for the Petitioner : MR G N SAHEWALLA, MR. P SARMA,MR T C DAS,MR. O P
BHATI,MS T J SAHEWALLA,MS K SARMA,MS G DUGAR,MR M SAHEWALLA
Advocate for the Respondent : MR. A DHAR, S KACHARI,MD F FARIDI
BEFORE
HONOURABLE MR. JUSTICE SOUMITRA SAIKIA
ORDER
05.08.2025 Heard Mr. OP Bhati, learned counsel for the petitioner. Also heard Mr. A. Dhar, learned counsel for the respondent.
Page No.# 2/12 2] This is an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 filed by the petitioner.
3] The petitioner and the respondent had a partnership firm under the name and style of M/s Swastik Agro Products and a deed of partnership was executed by and between them on 05.08.2020. The said partnership deed also contained an arbitration clause at Clause-22. Pursuant to the execution of the partnership deed, the petitioner and the respondent carried on their business in terms of the partnership deed. Subsequently, the disputes and differences arose between the petitioner and the respondent. The petitioner made certain allegations of misappropriation of fund by the respondent. Thereafter, a notice under Section 21 of the Arbitration and Conciliation Act, 1996 was issued by the petitioner vide notice dated 29.11.2024 calling upon the respondent to appointment an arbitrator. The notice also referred in detail the differences and disagreements, which had arisen between the petitioner and the respondent. The said notice not being replied to, the present petitioner has approached this Court by filing an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator.
4] Per contra, Mr. A. Dhar, learned counsel for the respondent submits that this petition is not maintainable as partnership which was created by virtue of partnership deed dated 05.08.2020 executed by and between the parties was partnership at will. Mr. Dhar refers to Clause-3 of the said deed and submits that as per Clause-3 it is a partnership at will and it is further specified therein that the partnership shall not dissolve on the death or retirement or exist by any other means or admission of a new partner. He submits that since it is a Page No.# 3/12 partnership at will, because of the differences which has arisen between the petitioner and the respondent, the respondent had dissolved the partnership under Section 43 of the Indian Partnership Act, 1932. In this regard, notice under Section 43(1) of the Indian Partnership Act, 1932 was also issued by the respondent calling upon the petitioner to settle the accounts of the partnership immediately upon receipt of a notice, failing which the respondent shall not be held responsible for financial transaction. In reply to the said notice, the petitioner by his reply dated 26.11.2024 made allegations against the respondents that he had misappropriated funds causing loss to the firm as well as to the petitioner and referred to several instances which according to the petitioner were incorrect and false statement. The petitioner, however, called upon the respondents to come forward and settle the accounts and discharge the liabilities and obligations.
5] Learned counsel for the respondents therefore submits that the partnership at will was dissolved well prior to the notice issued by the petitioner under Section 21 of the Arbitration and Conciliation Act, 1996. Referring to the averments made in the writ petition, Mr. Dhar submits that the notice under Section 43 of the Indian Partnership Act, 1932 was issued by the respondent on 11.11.2024 to which the petitioner responded by submitting his reply on 26.11.2024, whereas the notice under Section 21 of the Arbitration and Conciliation Act, 1996 was issued on 29.11.2024. He therefore submits that prior to issuance of notice under Section 21 of the Arbitration and Conciliation Act, 1996 the partnership being a partnership at will stood dissolved and therefore, the very basis on which the arbitration has been sought for by the petitioner is no longer available. He further submits that there is an FIR filed by Page No.# 4/12 the petitioner against the respondent alleging serious allegations of misappropriation and forgery being resorted to by the respondent and the matter is presently under investigation by the concerned authorities. He further submits that the respondent had to seek bail and is currently on bail on orders passed by Court. It is, therefore, submitted that in view of the allegations of fraud and forgery, it is necessary that the matter be decided by an appropriate Court of law and that being so, the issues raised in the present writ petition fall outside the scope of arbitrability. Therefore, the matter ought not to be referred to the arbitrator for its decision. Consequently, the prayer made in this application should be rejected and the petition be dismissed.
6] Mr. OP Bhati, learned counsel for the petitoner, on the other hand, referred to the judgment of the Apex Court rendered in Interplay between Arbitration and Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899 in Re reiterated in (2024) 6 SCC 1. Referring to the said judgement learned counsel for the petitioner submits that the constitution Bench of this Apex Court in this judgment had dealt with the several aspects regarding the scope of arbitration, arbitrability of the issues. The Apex Court had clearly held that arbitration agreement has to be treated to be of separate nature from the underline contract as it is one of the corner stone of the Arbitration Law. He submits that referring to the judgement that it is the intention of the parties which will prevail in deciding whether the matter needs to be referred before the arbitration. Referring to the partnership agreement, learned counsel for the petitioner submits that there is no dispute that the parties had created the partnership by executing a partnership deed dated 05.08.2020 and reference to arbitration is one of the clauses which is agreed to Page No.# 5/12 by and between the parties while executing the arbitration agreement. He, therefore, submits that besides the contention of the petitioner that the partnership stood dissolved by virtue of the fact that it was a partnership will and consequently, no reference to arbitration can be made. He submits that this argument is fallacious in view of the law laid down by the Apex Court in Interplay between Arbitration and Agreements (supra). Learned counsel for the petitioner in support of his contention also presses into service the judgment of the Apex Court rendered in Swiss Timing Limited vs. Commonwealth Games 2010 Organising Committee reported in (2014) 6 SCC 677.
7] Mr. A Dhar, learned counsel for the respondent, on the other hand place reliance of the judgement of A. Ayyasamy vs. A Paramasivam and Others reported in (2016) 10 SCC 386. Referring to the said judgment Mr. Dhar submits that where there are allegations of serious fraud then reference to arbitration is not required to be taken recourse to. This allegation of fraud can only be determined by the Court of competent jurisdiction. He has also referred to the judgment of Manibhai Shankerbhai Patel vs. Swashray Construction Co. and Others reported in 1981 SCC OnLine Guj 46 in support of his contention that under Section 43 of the Partnership Act, where it is a partnership of will the firm may be dissolved by any partner by giving notice in writing to all the other partners of his intention to dissolve the firm. Once such a notice is given and the firm is dissolved as from the date mentioned in the notice or from the date of dissolution and if no date is so mentioned from the date of communication of the said notice. He, therefore, submits that since it was a partnership at will which fact was not disputed by the petitioner, having issued a notice under Section 43(1) of the Partnership Act, the partnership stood dissolved and Page No.# 6/12 thereafter, the issuance of a notice under Section 21 of the Arbitration and Conciliation Act, 1996 cannot be issued as the partnership having been dissolved the partnership agreement will have no effect thereafter, including the clause of arbitration.
8] Learned counsel for the parties have been heard and pleadings available before the Court have been carefully perused.
9] The core issue raised before this Court is whether, in the event of the dissolution of a partnership deed, the arbitration clause contained therein can be severed from the underlying agreement, and whether the parties or any party can still invoke arbitration by relying on the said clause.
10] There is no dispute on the facts that the partnership constituted by the petitioner and the respondent is on the basis of the partnership deed dated 05.08.2020 executed by and between them and which reveals that it is a partnership of will. Under Section 43 of the India Partnership Act, 1932, where it is a partnership of will, the same may be dissolved by issuance to a notice to all the partners or the other partner of the partnership. In the facts of the case there is no dispute that the respondent had issued the notice dated 11.11.2024 under Section 43(1) of the Indian Partnership Act, 1932. This notice was replied to by the petitioner by his communication dated 26.11.2024. Therefore, this factual aspect not being disputed by the respondent, it is apparent that under Section 43 of the Indian Partnership Act, 1932, the partnership at will has come to be dissolved upon issuance of notice by the respondent. It is also not in dispute that the respondent does not deny the existence of the partnership Page No.# 7/12 agreement including the arbitration clause mentioned in the partnership deed at Clause No.22. There is no averment or submission on behalf of the respondent that the arbitration Clause found in the partnership deed dated 05.08.2020 was inserted fraudulently by the petitioner without concurrence of knowledge of the respondent. The only ground urged by the respondent is that where it is a partnership of will and it came to be dissolved by issuance of notice by the respondent under Section 43 of the Indian Partnership Act, 1932 and that having been given effect to whether the partnership deed executed by and between the parties including the arbitration clause found mentioned therein will continue to have any binding effect on the partners.
11] In order to answer this question it is necessary to refer to the authoritative judgment rendered by the Constitution Bench in Interplay between Arbitration and Agreements (supra). This judgment, inter alia, delved into the aspect of separability of arbitration agreement. The Apex Court held that the separate nature of the arbitration agreement from the underlying contract is one of the corner stone of the arbitration law. The concept of separability reflects in presumptive intention of the parties to distinguish the underline contract which captures the substantive right and obligations of the parties from an arbitration agreement which provides procedural frame work to resolve the dispute arising out of the underlying contract. This presumption has several consequential implications in practice, most importantly that an arbitration agreement survives the invalidity or termination of the underlying contract. Relevant paragraphs of the judgment are extracted below:
"96......
Page No.# 8/12
(i) Separability of the arbitration agreement
98. The concept of separability or severability of an arbitration agreement from the underlying contract is a legal fiction which acknowledges the separate nature of an arbitration agreement. The separate nature of the arbitration agreement from the underlying contract is one of the cornerstones of arbitration law. As Redfern and Hunter explain, an arbitration agreement is juridically independent from the underlying contract in which it is contained. The concept of separability reflects the presumptive intention of the parties to distinguish the underlying contract, which captures the substantive rights and obligations of the parties, from an arbitration agreement which provides a procedural framework to resolve the disputes arising out of the underlying contract. This presumption has various consequences in theory and practice, the most important being that an arbitration agreement survives the invalidity or termination of the underlying contract."
12] A careful examination of the judgment reveals that the arbitration agreement is treated to be separate from the underlying agreement in which the arbitration is referred to as clause or part of the said contract. This separability of the arbitration agreement from the underlying contract is essentially determinative keeping in view of the intention of the parties to resolve the dispute which may have a reason between them out of the underlying contract executed by and between them. The law, therefore, which governs this aspect is that notwithstanding the termination or invalidity of the underlying agreement, if there was an intention found to have been clearly expressed by the parties to refer any disputes towards arbitration, then the said Page No.# 9/12 agreement to refer to the arbitration 'must be treated to be separate from the underlying agreement which contain the arbitration clause.' 13] Coming to the facts of this case, it is seen that even in the notice under Section 43 (1) of the Partnership At, 1932, the respondent had called upon the petitioner to settle the accounts. This notice was replied to by the petitioner by communication dated 26.11.2024. While disputing the allegations made by the respondent therein, the petitioner also called upon the respondent to come forward and settle the dispute. Therefore, notwithstanding the allegations of fraud or forgery made by the petitioner against the respondent and which at present is still ath the stage of investigation, the dispute arising between the petitioner and the respondent relates to the their business relationship which they had carried on in the form of partnership supported by the deed of partnership entered by and between the parties by deed of agreement dated 05.08.2020.
14] Under such circumstances, it is clearly discernable that at the time when the deed of partnership was executed by and between the petitioner and the respondent, both the parties had consciously agreed upon to refer the matter to arbitration in the event any disputes or differences arise by and between the parties. This position is not disputed by the respondent. The only dispute raised is that in view of the dissolution of the partnership at will by way of notice under Section 43(1) of the Arbitration and Conciliation Act, 1996, the deed of partnership cannot be enforced and consequently, the arbitration clause also cannot be enforced. This submission of the respondents cannot be accepted in view of the pronounced law laid down by the Apex Court. The Page No.# 10/12 submissions of the respondent stand rejected accordingly.
The Arbitration Agreement/Clause has to be treated to be a separate agreement from the underlying agreement. Consequently, the Arbitration Agreement/Clause will continue to be valid and enforceable notwithstanding the dissolution of the partnership-at-will.
15] Coming to the issue of arbitrability in view of the allegations and counter allegations made between the parties alleging fraud and forgery, this aspect of the matter has also been settled by the Apex Court in Interplay between Arbitration and Agreements (supra) and subsequently, decided and followed in other judgments as well as the judgments of the Apex Court rendered in N.N. Global Mercantile Private Ltd vs. Indo Unique Flame Limited and Others reported (2021) 4 SCC 379. In the said matter, the Apex Court clearly held that all civil and commercial disputes either contractual or non- contractual which can be adjudicated upon by Civil Court, in principle, can be adjudicated and resolved through arbitration, unless it is excluded either expressly by a statute or by necessary implications. The Arbitration and Conciliation Act, 1996 does not exclude any category of dispute as being non arbitrable. The Apex Court went on to set down certain forms of disputes which are considered to be non-arbitrable disputes such as (i) relating to rights and liabilities which give rise to or arise out of criminal offences, (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody, (iii) matters of guardianship, (iv) insolvency and winding up, (v) testamentary matters, such as the grant of probate, letters of administration and succession certificates; and (vi) eviction or tenancy matters governed by Page No.# 11/12 special statutes where a tenant enjoys special protection against eviction and specific courts are conferred with the exclusive jurisdiction to deal with the dispute.
16] In the facts of the present case, the allegation of fraud is still under investigation and no charges have yet been filed against the respondent on the basis of the FIR lodged by the petitioner. That apart, the Apex Court as well as this Court has time and again held that the jurisdiction of the arbitrator is fairly wide and it is open to the arbitrator to even consider the arbitrability of any dispute. The referral Court's jurisdiction in the matter of arbitration is extremely limited. All the referral Court is required to do is to examine the existence of a valid arbitration agreement. Unless the dispute which are sought to be referred for arbitration are specifically excluded under any statute or in the agreement itself, the question of arbitrability of any or all of the disputes are to be left open to be decided by the arbitrable tribunal itself. Under such circumstances, this Court is of the view that the contentions raised by the respondent are not tenable and the same are therefore rejected. Since the respondent did not respond to the notice dated 29.11.2024 issued under the Section 21 of the Arbitration And Conciliation Act, 1996, within the period prescribed, the respondents are denuded of their right to appoint an arbitrator as has been held by the Apex Court in Datar Switchgears Ltd. Vs. Tata Finance Ltd. reported in (2000) 8 SCC 151. Under such circumstances, this Court under the authority given under the Section 11 of the Arbitration and Conciliation Act, 1996 appoints Shri Mrinmoy Kumar Bhattacharjee, retired District and Sessions Judge, Assam to be appointed as an arbitrator to decide the disputes arising between the parties. This appointment is prospective subject to furnishing of Page No.# 12/12 written declaration as required under Section 12 (1)(b) of the Arbitration and Conciliation Act, 1996. A copy of this order be marked to Shri Mrinmoy Kumar Bhattacharjee, retired District and Sessions Judge, Assam by the Registry of this Court. The parties are also permitted to furnish a copy of this order and the place it before Shri Mrinmoy Kumar Bhattacharjee, retired District and Sessions Judge, Assam.
17] Let the matter be listed on 22.08.2025 permitting the prospective arbitrator to submit the written declaration.
JUDGE Comparing Assistant