Introduction:

The High Court of Bombay recently deliberated on the referral of business-related disputes within a firm to arbitration in absence of consent from all partners. In the case of Shailesh Ranka and Ors v. Windsor Machines Limited, the bench led by Justice Manish Pitale addressed the implications of Section 19(2)(a) of the Partnership Act, 1932, regarding a partner’s authority to initiate arbitration proceedings without unanimity among partners. The dispute emerged from an investment agreement involving R-Cube Energy Storage Systems LLP, its partners, and a company.

Arguments:

Representing the applicants, Ms. Rima Desai along with Mr. Rudra Deosthali argued in favor of invoking arbitration proceedings as outlined in the investment agreement, citing respondent No.1’s default in obligations and its repercussions on Fraunhofer Institute. They emphasized the adherence to the dispute resolution process, including appointing neutral persons, and contended that respondent No.1’s failure to participate in the prescribed steps barred their objection to the appointment of arbitrators.

On the respondents’ side, Mr. Nausher Kohli and his associates raised objections based on non-exhaustion of pre-arbitration steps and the absence of consent from all partners in initiating arbitration proceedings. They highlighted that the arbitration notice lacked the consent of the 2nd respondent, a partner in the firm, rendering the notice and subsequent appointment petition invalid under Section 19(2)(a) of the Partnership Act, 1932.

Court’s Judgement:

Justice Manish Pitale’s bench dismissed the application under Section 11 of the Arbitration Act, ruling that the arbitration notice issued by one partner without unanimity from all partners was invalid. The Court underscored that a partner’s implied authority does not extend to unilaterally referring firm-related disputes to arbitration, as per Section 19(2)(a) of the Partnership Act, 1932. The failure to obtain consent from all partners invalidated the notice, rendering the appointment petition defective and devoid of a cause of action.