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Tarun Dhameja vs. Sunil Dhameja & Anr.

Not available · 2024 INSC 973Decided 6 Dec 2024
Not available
Chief Justice Sanjiv Khanna · Justice Sanjay Kumar

Background

A partnership deed contained an arbitration clause stating that disputes "shall be referred to arbitration," but also that arbitration "shall be optional" and that the arbitrator would be appointed "by partners with their mutual consent." After a partner died, his legal representative (the appellant) sought to invoke this clause to refer a dispute to arbitration, but the other side argued the clause was not truly binding since it described arbitration as "optional." The matter reached the Supreme Court after a Section 11(6) petition (for court-appointed arbitration) was rejected.

Decision Breakdown

The Supreme Court held that the clause could not be read as making arbitration non-existent or entirely conditional on all parties agreeing to it. The first part of the clause clearly mandated that disputes between partners or their heirs "shall be referred to arbitration"; the "optional" language in the second part only meant that the parties would try to appoint an arbitrator by mutual consent, not that they could refuse arbitration altogether. Where they cannot agree on an arbitrator by consent, the Act itself allows a court (or, per the Court's direction here, the Madhya Pradesh Arbitration Centre) to appoint one. The Court set aside the High Court's order and treated the arbitration petition as allowed, directing the appointment of an arbitrator, while clarifying it had not commented on the merits of the underlying dispute.

Lesson Learnt

An arbitration clause should be read as a whole and pragmatically: the word "optional" attached to how an arbitrator is chosen does not defeat a clear, separate obligation elsewhere in the same clause that disputes "shall" go to arbitration; courts will step in to appoint an arbitrator when the parties cannot agree on one by consent.

Official source (sci.gov.in)View Judgment (PDF)

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