Ananthesh Bhakta (rep. by mother Usha A. Bhakta) & Ors. v. Nayana S. Bhakta & Ors.
Background
Members of a family that had run a "Beedi" manufacturing business through a partnership firm, M/s Neo Subhash Beedi Works, fell into a dispute over property after a series of retirements, deaths, and reconstitutions of the partnership over the decades. The plaintiffs sued for an injunction to stop the defendants from dealing with certain partnership property, but the defendants sought to have the dispute referred to arbitration under Section 8(1) of the Arbitration and Conciliation Act, 1996, relying on arbitration clauses in a 2005 retirement deed and a 2006 partnership deed. Both the trial court and the Karnataka High Court sent the parties to arbitration, and the plaintiffs appealed to the Supreme Court.
Decision Breakdown
The Supreme Court upheld the reference to arbitration, rejecting each of the appellants' three objections. It held that the dispute over the property fell within the scope of the arbitration clauses in the retirement and partnership deeds, that the parties opposing arbitration were themselves bound by or claiming through those deeds (so there was no improper splitting of the dispute), and that an arbitration clause in an unregistered partnership deed is still enforceable, since no provision of the Arbitration Act or any other statute bars it. Finding no merit in any of the submissions, the Court dismissed the appeal and confirmed the lower courts' decision to refer the matter to arbitration.
Lesson Learnt
A valid arbitration clause in a partnership or retirement deed will generally be enforced even against family members contesting succession or property rights under that partnership, and the fact that a partnership deed is unregistered does not by itself defeat an arbitration clause contained in it.