Navigating Partnership Disputes in Arbitration: Bombay High Court Upholds Minimal Judicial Intervention, Tasking Arbitral Tribunal to Determine Privity Amidst Partner Succession and a Substitute Presiding Arbitrator Appointment


The High Court of Judicature at Bombay recently addressed a contentious arbitration petition, 2025:BHC-AS:11467, arising from a dispute concerning the exit of the Petitioner, Darshan Mahendra Nibjya, from a partnership firm where Respondent No. 2, Jayantilal Tarachand Oswal & Ors., subsequently became a partner. 

The core legal question revolved around the maintainability of the arbitration against Respondent No. 2, who contended that no arbitration agreement existed between him and the Petitioner. This issue came before the Court in the context of an application for the appointment of a substitute presiding arbitrator, necessitated by the resignation of the previously appointed arbitrator following allegations from Respondent No. 2.

The genesis of the matter lies in the inability of the arbitrators nominated by the Petitioner and Respondent No. 1 to agree on a presiding arbitrator, leading to the initial appointment by a Learned Single Judge, an order upheld by the Supreme Court. However, the resignation of the presiding arbitrator triggered the present application under Section 11 of the Arbitration and Conciliation Act, 1996 (the “Act”).

Respondent No. 2 raised a significant objection, arguing that no arbitration agreement bound him to the Petitioner as he was not a partner when the Petitioner was part of the firm, and therefore, the arbitration agreement did not extend to him. This contention challenged the very privity of contract necessary for invoking arbitration.

However, the Hon’ble Mr. Justice Somasekhar Sundaresan firmly reiterated the limited scope of judicial intervention under Section 11 of the Act. The Court emphasized that it is now settled law, particularly in light of the seven-judge bench decision in the Interplay Judgement and subsequent pronouncements, that a Section 11 court should primarily examine the existence of a formally executed arbitration agreement.

The Court explicitly distinguished the present legal position from the precedent cited by Respondent No. 2, Magic Eye Developers Pvt. Ltd. Vs. M/s. Green Edge Infrastructure Pvt. Ltd., noting that the law declared in that judgment has been overtaken by subsequent larger bench decisions of the Supreme Court.

Justice Sundaresan underscored that delving into the complexities of whether Respondent No. 2 is a necessary party to the disputes, considering the continuous nature of the partnership firm despite changes in its composition, would necessitate an inappropriate intrusion into matters of evidence, which falls squarely within the jurisdiction of the arbitral tribunal under Section 16 of the Act. The fact that Respondent No. 2 had already filed an application under Section 16 before the arbitral tribunal concerning this very issue further solidified the Court's stance against preemptive adjudication.

Consequently, the Court proceeded to appoint Smt. Justice R.P. Sondurbaldota (Retd.) as the substitute Presiding Arbitrator, along with the previously nominated co-arbitrators, to adjudicate the disputes between the parties. The Court explicitly clarified that this appointment does not constitute any expression of opinion on the merits of the matter, keeping all substantive issues open for the arbitral tribunal to decide. Notably, the Court imposed costs of Rs. 25,000 on Respondent No. 2, taking into account their "trenchant approach" to the proceedings.

This decision reinforces the pro-arbitration stance of the Indian judiciary, emphasizing the principle of minimal judicial interference at the stage of appointment of arbitrators and underscoring the arbitral tribunal's competence to decide on its own jurisdiction, including questions of privity of contract, particularly in intricate scenarios involving evolving partnership structures.

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