Defective Invocation Notice Lead to Dismissal of Arbitration Application: Bombay High Court

Shailesh Ranka and others
…Applicants
versus
Windsor Machines Limited and another 
…Respondent

Case Number: Commercial Arbitration Application No. 38198 of 2022

Date of Judgement: 19.12.2023

Download Judgement: CLICK HERE

Facts:

  • Applicants (Ranka family) and Respondent 2 (KrishnaArya Tech Corp LLP) formed partnership R-Cube Energy
  • R-Cube Energy entered investment agreement with Respondent 1 (Windsor Machines)
  • Disputes arose between parties regarding non-fulfilment of obligations under the agreement
  • Investment agreement contained two-tier dispute resolution mechanism – first amicable settlement, then arbitration
  • Applicants appointed neutral person under clause 24.2.3 and asked Respondent 1 to do so too
  • Notice invoking arbitration issued only on behalf of Applicants, not on behalf of partnership firm R-Cube Energy

Arguments by Applicants:

  • They had activated dispute resolution mechanism by appointing neutral person under clause 24.2.3
  • Respondent 1 failed to appoint neutral person, so they invoked arbitration
  • Invocation notice was on behalf of entire R-Cube Energy partnership
  • Valid arbitration clause exists, so parties should be referred to arbitration

Arguments by Respondent 1:

  • Two-tier dispute resolution not properly followed before invoking arbitration
  • Invocation notice defective as not issued on behalf of partnership firm R-Cube Energy which had agreement with Respondent 1
  • Section 19(2)(a) of Partnership Act bars one partner submitting dispute of partnership firm to arbitration without other partners

Court’s Decision:

  • Applicants did activate first tier by appointing neutral person, so first objection fails
  • However, arbitration invocation notice was defective as not issued on behalf of partnership firm R-Cube Energy
  • Section 19(2)(a) Partnership Act applicable, so one partner (Applicants) couldn’t invoke arbitration for dispute of partnership firm without other partner (Respondent 2)
  • Following precedent, such invocation notice gave no cause of action under Section 11 of Arbitration Act
  • Application dismissed

Referred Laws:

  • Arbitration and Conciliation Act 1996
  • Indian Partnership Act 1932, Section 19(2)(a)