This article is written by Soumya Nandi, pursuing Certificate course in Arbitration: Strategy, Procedure and Drafting from LawSikho.com.
Death is inevitable,
Death sets you free,
Death can come anytime,
Death is the last decree.
Death definitely is the last decree for the deceased but it is certainly not the last decree for the arbitration agreement to which the deceased was a party. The section 40 of The Arbitration and Conciliation Act 1996 (Amended 201 and 2019) [hereinafter called the Act] state that the arbitration agreement shall not be discharged by the death of any party and can be enforceable by or against the legal representatives of the deceased. A legal representative is defined in the section 2(1)(g) of the Act as a person who in law represents the estate or a person who intermeddles with the estate of a deceased person or a person on whom the estate delegates upon the death of the party.
Thus, if there is an arbitration clause in the contract agreement, then a person who represents the deceased / the estate of the deceased is entitled to invoke arbitration to resolve any commercial dispute relating to any contract which the deceased might have entered into while alive. There have been few instances where the court had to rely on the section 40 of the Act while judging the case and some of these are presented hereunder.
Supreme Court Verdict in the matter of Shri Ravi Prakash Goel vs Shri Chandra Prakash Goel & Anr dated 21st March 2007
In this case, Shri Ravi Prakash Goel was the Petitioner and Shri Chandra Prakash Goel and another person were the respondents. Smt Dulari Devi, the mother of the Petitioner, was a partner in a business along with Shri Chandra Prakash Goel, Shri Rakesh Aggarwal and Smt Pushplata since 1983. A Partnership Deed was executed between all the parties. Thereafter, Smt Pushplata retired from the partnership in 1992 and a fresh Partnership Deed was executed between the remaining parties. The net profits earned by the partnership firm were to be divided amongst all the parties at a mutually agreed percentage mentioned in the Partnership Deed.
However, in 2004 the respondents did not respond to repeated verbal requests by the appellant’s mother to explain the accounts statement to her. So, she sent a notice to the respondents vide which she disputed the accounts of the partnership firm and informed the other partners that on account of her illness she has authorized her son, Shri Ravi Prakash Goel, the petitioner to look into her accounts related to the partnership business on her behalf as her legal representative. In this notice she had also requested the respondents to explain the statement of accounts to her son between certain dates. However, there was no response from either of the respondents. So, the petitioner himself visited the office of the partnership firm but the respondents refused to let him look into the accounts statement of the firm in spite of several requests.
Meanwhile, Smt Dulari Devi passed away in Oct’2004 almost a month after she executed her last will in which she bequeathed her estate including the partnership business to her only son, Ravi, the petitioner.
After his mother’s death, the petitioner sent a notice invoking arbitration to the respondents informing them that as per the terms of the Partnership Deed, the existing dispute regarding the accounts statement of the partnership firm shall have to be resolved through arbitration and also suggested the name of an arbitrator, i.e. his nominee, to resolve the dispute. The arbitration clause in the Partnership Deed stated that all disputes pertaining to the partnership firm shall have to be referred to an arbitrator in accordance with the stipulations of the Indian Arbitration Act and the verdict given by the arbitrator shall be final and binding on all parties. However, now also, there was no reply from either of the respondents.
Therefore, the petitioner filed an application under Section 11 of the Act, before the Allahabad High Court requesting the court to appoint an arbitrator. However, the court observed that the petitioner does not have an “establishable binding arbitration agreement” with the respondent and dismissed the application.
Subsequently, the aggrieved party, Shri Ravi Prakash Goel, appealed to the Supreme Court against the verdict of the Allahabad High Court. Here, the petitioner submitted that the High Court had overlooked the provisions of Section 40 of the Act and some other relevant sections of the Indian Partnership Act and thereby erred in dismissing the section 11 application of the appellant. The Supreme Court, in their verdict, stated that it was clear from the section 40 of the Act that an arbitration agreement was not discharged upon the death of one party and it remains to be enforceable by or against the legal representative of that party.
The court opined that any person who has the right to represent the estate of the deceased person occupies the status of a legal person. The court stated that in view of the provisions of the section 40 of the Act and some relevant sections of the Indian Partnership Act, the section 11 application for appointment of an arbitrator should have been allowed by the Allahabad High Court and the court had indeed erred in overlooking the above provisions. The Supreme Court also observed that the High Court’s view that the petitioner does not have an established binding agreement with the respondent is erroneous in law and facts. The court further opined that the petitioner has the legal right to invoke the arbitration clause and commence arbitration by moving an application under section 11 of the Act.
Allahabad High Court verdict in the matter of Smt. Parwati Devi & Others vs M/s Kesharwani & Co on 05th May 2011
Smt. Parwati Devi was the legal heir of (Late) Shri Bhairon Nath Kesharwani, who was a partner in M/s Kesharwani & Co. As per the Partnership Deed, the duration of the partnership was at Will but in case of death or retirement of any partner, the firm shall not be dissolved automatically and shall continue to exist with the remaining partners. The outgoing partners shall be entitled only to receive their credit balance after the adjustment of profit / loss. They shall have no other right to receive anything else from the firm. Further, the Partnership Deed also stated 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 conducted as per the Arbitration and Conciliation Act, 1996.
While he was alive, Shri Bhairon Nath Kesharwani had executed a registered Will in which he bequeathed his movable and immovable assets to Smt Parwati Devi and other members of his family, who were his legal heirs.
After the death of (Late) Shri Bhairon Nath Kesharwani, the power of attorney holders of his legal heirs sent a notice to the firm requesting them to pay the credit balance receivable as per the terms of the Partnership Deed. The firm requested them to provide some documents such as certified copy of registered Will & power of attorney, etc., which was promptly provided to them. However, in spite of providing all documents which were sought by the firm, there was neither any response nor any payment received from the firm. This was a blatant violation of the explicit terms of the Partnership Deed resulting in a dispute between the parties which was not resolved mutually between the parties. Thus, the aggrieved party, i.e. the legal heirs of the deceased requested the firm for the appointment of an arbitrator by mutual consent. However, still there was no response from the firm.
Consequently, Smt Parwati Devi and others filed a section 11 application before the Allahabad High Court for appointment of an arbitrator. The respondent firm only raised the question before the court whether the petitioners, the heirs and legal representatives of the deceased, had the right to invoke arbitration as per the terms of the Partnership Deed.
The court understood from the rationale in the decision of the Supreme Court in the matter of Shri Ravi Prakash Goel vs Shri Chandra Prakash Goel & Anr that the death of a partner does not extinguish the provision pertaining to arbitration and the legal heirs of the deceased are entitled to invoke arbitration. Considering the above, the court ruled that the arbitration clause subsists, the petitioners are well within their rights to invoke arbitration and the respondents have erred in refusing to agree to appointment of an arbitrator. The court went ahead and sole arbitrator to resolve the dispute between the parties.
Delhi High Court verdict in the matter of Smt Jyoti Gupta vs Kewalsons & others on 19th March 2018
Smt Jyoti Gupta was the legal heir of (Late) Shri Shyam Gupta who had entered into a partnership deed with Kewalsons and others in the year 1974 and there were 3 other supplementary deeds executed in the years 1992, 1995 and 2014. However, (Late) Shri Shyam Gupta expired on 16th April 2016 and thereafter, the partnership deed was re-constituted by the surviving partners and a fresh partnership deed was executed between them very soon, on 30th April 2016.
The clause 12 of the original Partnership Deed of 1974 provided that upon death of any partner, instead of dissolving the partnership, the surviving members may agree to induct the legal heirs of the deceased partner as a party to the partnership agreement. Moreover, as per clause 13 of the Partnership Deed, the partnership could be dissolved by any of the partner by giving a written notice to the other partners. The arbitration agreement for the Partnership Deed was mentioned in clause 15.
After the death of (Late) Shri Shyam Gupta, Smt Jyoti Gupta his legal heir had sent several notices to the Kewalsons through emails for invocation of arbitration for resolution of the disputes in connection with the Partnership Deed. However, the respondents in their reply refused to appoint an arbitrator.
Therefore, Smt Jyoti Gupta, the legal heir of (Late) Shri Shyam Gupta filed an application under section 11 of the Act before the Delhi High Court. The respondents submitted before the court that the partnership agreement did not stand dissolved either upon the death of (Late) Shri Shyam Gupta or by any written notice given by him in his lifetime. Further, the arbitration agreement stated in clause 15 of the Partnership Deed was between the partners and as the term ‘Partner’ as defined in the Partnership Deed did not include their legal heirs, the legal heirs of (Late) Shri Shyam Gupta could not invoke the arbitration agreement. Moreover, the respondents submitted that the partnership deed had been reconstituted after the death of (Late) Shri Shyam Gupta and his legal heirs was not a party to the new partnership deed and hence any recourse available to them was through civil suit and not through arbitration.
The court referred similar precedents in the verdicts by the Supreme Court in the matter of Shri Ravi Prakash Goel vs Shri Chandra Prakash Goel & Anr and the Allahabad High Court in the matter of Smt Parwati Devi & Others vs M/s Kesarwani & Co and ruled that the arbitration agreement between the partners shall survive and can be enforced by the legal heirs of the deceased partner. The right for enforcement of the arbitration agreement by the legal heirs of the deceased partner cannot be extinguished merely because the clause 15 of the Partnership Deed mentions that only the disputes between the “partners” shall be resolved by arbitration. On the basis of the above reasoning, the Delhi High Court found no impediment in appointing an arbitrator to resolve the disputes between the parties in connection with the Partnership Deed and went on to appoint an arbitrator as sought by the petitioner through the section 11 application.
From the above case laws it is obvious that for contracts wherein an arbitration clause is mentioned in writing or there is an arbitration agreement, then arbitration clause can be invoked after the death of a party by his / her legal representatives to resolve a dispute which is arbitrable. Relevant documents must be available to prove that the person invoking arbitration is the legal representative of the deceased. Further, the deceased should have been a party to the contract as on the date of his death and the contract / partnership deed should not have been expired before his death. Indeed there is no doubt that after the death of a party arbitration can be invoked under suitable certain circumstances.
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