Arbitration – Section 11 – Section 19(2)(a) of the Partnerships Act – Invocation of arbitration by one set of partners of the partnership – Notice is defective

The applicants and the respondent no.2 – partners of LLP – had entered with investment agreement dated 2.2.2018 with the respondent no.1 Company.   However, the respondent no.1 defaulted in investment.  The applicants gave notice dated 20.5.2022 for initial process of dispute resolution, appointed neutral person and requested no.1 to appoint its neutral person.  Although the respondent no.1 had accepted the neutral person of the applicants vide email dated 29.6.2022 but the respondent no.1 did not take forward dispute resolution mechanism.

By the notice dated 20.8.2022 to the respondent no.1 and also to the respondent no.2, the applicants invoked the arbitration.

Clause 24 of the Investment Agreement provides for two-tier mechanism of dispute resolution.  First tier of mechanism was for dispute resolution by the neutral persons nominated by each of the parties and on its failure, to invoke arbitration.

HELD that the elaborate exchange of communications can be said to have complied with the first tier mechanism.  However, section 19(2)(a) of the Partnership Act shows that a partner in a partnership does not have power to refer the dispute to arbitration.   The notice was, therefore, defective.   The application was dismissed.

Order dated 19.12.2023 in Commercial Arbitration Application (L) No.38198 of 2022 of Shailesh Ranka and others Vs. Windsor Machines Limited and another