This article has been written by Rashmi C, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. It has been edited by Prashant Baviskar (Associate, LawSikho) and Smriti Katiyar (Associate, LawSikho).
Table of Contents
Introduction
Arbitration agreements are just like contingent contracts, wherein they can be enforceable only when the dispute arises between the parties to the agreement. The Parties enter into the arbitration agreement in order to solve the disputes which may arise out of the contract in future without the intervention of the courts. There may be some unforeseeable circumstances, where the question of the survivability of the agreement will become relevant, such as the death of one of the parties to the arbitration agreement. The courts in several cases have held that the arbitration agreement will not be terminated by the death of any party to the agreement.
In this article, we shall discuss in detail about the effects of death of a party to the arbitration agreement along with some of the judicial precedents.
Effect of death of a party to an arbitration agreement
Section 40 of the Arbitration And Conciliation Act, 1996
Section 40 of the Arbitration and Conciliation Act, 1996 (Hereinafter referred to as Act) states as follows:
40 (1) An arbitration agreement shall not be discharged by the death of any party thereto either as respects the deceased or as respects any other party, but shall in such event be enforceable by or against the legal representative of the deceased.
(2) The mandate of an arbitrator shall not be terminated by the death of any party by whom he was appointed.
(3) Nothing in this section shall affect the operation of any law by virtue of which any right of action is extinguished by the death of a person.
As per Section 40 the Act, the arbitration agreement entered between the parties shall not be discharged or terminated solely on the ground of death of one of the parties to the agreement. The same can be invoked by the legal representatives of the deceased party.
Case laws
Jyoti Gupta vs. Kewalsons (Arb. P. 599/2017 & I.A. 1357/2018):
GIST:
In this judgment, the Delhi High Court decided that, “Merely because, the arbitration agreement mentions about the disputes arising between the partners, it cannot take away the rights of the legal heirs of the deceased partner from enforcing such arbitration agreement as per Section 40 of the Act.
FACTS:
In this case, the Petitioner filed a petition under Section 11 of the Act praying before the court for the appointment of the sole arbitrator for the adjudication of the dispute between the parties to the Partnership Deed. One of the partners to the Partnership Deed had passed away before the invocation of the arbitration clause which was in the Partnership Deed. Upon his death, the Respondent filed an objection on the grounds that Clause 15 of the Partnership Deed is only between the partners to the agreement and does not include their legal heirs and thus, the legal heirs of the deceased partner cannot invoke the arbitration agreement.
JUDGEMENT
The Court, in this case, disagreed with the contentions made by the Respondent and held that, the arbitration agreement shall not be merely discharged by the death of the one of the parties to the agreement and the same can be enforced by the legal heirs of the deceased party, as the present case properly falls under Section 40 of the Act.
Ravi Prakash Goel vs. Chandra Prakash Goel & Anr (Appeal (Civil) 1526/ 2007)
FACTS OF THE CASE:
In the present case, the mother of the Petitioner, Smt Dulari Devi, Respondent Chandra Prakash Goel, Rakesh Aggarwal along with Pushpalatha were the business partners. The partners executed a Partnership Deed among themselves. Upon the retirement of one of the partners, a new Partnership Deed was executed between the rest of the partners. The net profit of the parties earned by the partners was to be divided by the partners at the rate mutually agreed between them.
In 2004, when the petitioner’s mother asked for an explanation for the accounts of statement, there was no proper response given to her by the Respondents. She thus sent a legal notice disputing the accounts of the firm and authorizing the Petitioner to look after her accounts in the partnership firm on her behalf, due to her illness. In the notice, she had also requested the Respondents to explain in detail about the accounts of the firm to the Petitioner. The Respondents failed to give reply to such notice and thus, the Petitioner himself visited the firm to check the statement of accounts.
In October 2004, Smt Dulari Devi, the mother of the Petitioner passed away and after a month, her will was executed. In her will, she had bequeathed her property along with the partnership business in Petitioner’s name (son). Upon such execution, the Petitioner sent a notice to the Respondents to inform them about the same. He also informed the Respondents that, the dispute that is existing, with regard to the books of accounts can be resolved through the arbitration and suggested the name of the arbitrator, as there was a clause in the Partition Deed, which stated that, “All the disputes with regard to the partnership firm shall be resolved by referring the dispute to an arbitrator in accordance with the stipulations of the Indian Arbitration Act and the verdict given by the arbitrator shall be final and is binding on all the parties.” There was no reply made by the Respondents to this notice as well.
Since the Petitioner received no reply from the Respondents side for his notices, he made an application before the Allahabad High court under Section 11 of the Act, for the appointment of the arbitrator. The Allahabad High Court made an observation that the Petitioner does not have a binding arbitration agreement with the Respondents and hence, his application was dismissed.
Upon such dismissal, the Petitioner made an appeal before the Supreme Court against the order passed by the Allahabad High Court, contending that the High Court has failed to consider the provisions of Section 40 of the Act and have erroneously dismissed the application made under Section 11 of the Act.
JUDGEMENT:
The Court in the present case observed that, the person who has the right to represent the deceased person will obtain the status of a legal person. The court also stated that, the Allahabad High Court should have allowed the application made by the appellant under Section 11 of the Act and should have appointed an arbitrator and the Allahabad High Court has committed an error by overlooking the provisions of the Arbitration and the Conciliation Act along with the provisions of the Indian Partnership Act. The Court also observed that, the Allahabad High court’s view that the Appellant not having a binding arbitration agreement with the respondents is also erroneous in law and facts. The Court in its judgment pronounced that the Appellant has the right to invoke the arbitration clause in the Partnership Deed and make an application before the court under Section 11 of the Act for the appointment of the arbitrator.
Pravati Devi And O/S. vs Kesharwani & Co. (5th May,2011).
FACTS:
Parwathi Devi was the legal heir of the late Bhairon Nath Kesharwani , who was one of the partners of M/s. Kesharwani & Co. The duration of the partner as per the Partition Deed was at the will of the party or in case of retirement of the partner. The arbitration agreement under the Partition Deed read that, any dispute arising out of the Partnership Deed shall be settled mutually amongst the partners and if this fails, then, an arbitrator or arbitrators shall be appointed by the parties and arbitration proceedings shall be conducted as per the Act.
Shri Bhairon Nath Kesharwani had executed a Will when he was alive, where he had bequeathed his properties, both movable and immovable in the name of Smt Parwati Devi and other family members (his legal heirs).
Upon the death of Shri Bhairon Nath Kesharwani, his legal heir’s attorney holders, sent the notice to the other members of the firm, informing them about the same and asking them to pay their part of the credit balance which shall be receivable by them, as per the terms of the Partnership Deed. Upon such notice, the other partners of the firm asked the legal heirs to provide them with the necessary documents and all those documents were provided by the legal heirs to the firm. The legal heirs did not get any response or the credit amount from the opposite parties. The parties being aggrieved by the same requested the firm to appoint an arbitrator to adjudicate the dispute and received no response for the same.
Upon receiving no response from the other partners of the firm, Smt Parwathi Devi made an application under Section 11 of the Act before the Allahabad High Court for the appointment of the arbitrator. The contention raised by the Respondent firm was that, can the Petitioner, being a legal heir, represent the deceased and have the right to invoke the arbitration clauses in the Partition Deed?
JUDGEMENT:
The Court considered the decision made by the court in the case of Ravi Prakash Goel Vs. Chandra Prakash Goel & Anr. That, the death of one of the partners to the agreement does not take away the provisions relating to arbitration and the legal heirs of such deceased partners have the right to invoke such arbitration clauses. The Court in the present case decided that the Petitioners have the right to invoke the arbitration clause and the Respondent firm has erroneously refused to appoint the arbitrator and thus, the Court appointed a sole arbitrator to adjudicate the dispute between the partners.
Conclusion
Survivability of the arbitration clause is very important and the decisions made by the court by interpreting Section 40 of the Act and extending the applicability of this section to the legal heirs of the deceased partners should be appreciated, as this is one of the best reliefs that, the legal heirs who have suffered damages can get. It is very clear from the above mentioned case laws and Section 40 of the Act that, the death of the party to the arbitration agreement will not have any negative impact on the arbitration agreement as the same can be invoked by his/her legal heirs and relief can be sought.
References
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