Arham Jain
On 21 February 2025, the Supreme Court of India reaffirmed that an arbitration agreement can be enforced against the lawyers representing of a deceased partner of a partnership firm in the case of Rahul Verma & Ors. v. Rampat Lal Verma & Ors. A Bench comprising of Justices JB Pardiwala and R Mahadevan determined that an Arbitration Agreement can be enforced by or against the deceased’s legal representatives and that it does not expire at the death of either party.
The present petition was filed by the legal heirs (Respondents) of a deceased partner in a partnership firm under Section 8 of the Arbitration and Conciliation Act, 1996, requesting referral to ‘Arbitration’. The Commercial Court rejected the same. In the contested judgment, the High Court determined that one of the partnership deed’s provisions clearly bound the surviving partner’s heirs as well.
“It is a well-established position of law that the term ‘partners’ extends to and would include their legal heirs, representatives, assigns or legatees, etc. Persons claiming under the rights of a deceased person are the representatives of the deceased party, and therefore, both the parties to the agreement and their legal heirs are entitled to enforce an arbitral award and are bound by it. In light of Section 40 of the Act of 1996 the existence of an arbitration agreement is not affected by the death of a party to the arbitration agreement. As a consequence, the right to sue for rendition of account also survives, ensuring that the legal representatives can assert or defend claims arising from the partnership agreement” the court stated.
The Supreme Court had to decide whether the stipulated arbitration agreement could still bind the legal heirs of a deceased partner in a partnership business even if they were not signatories to the partnership deed and did not expressly approve. The Court cited its ruling in Ravi Prakash Goel v. Chandra Prakash Goel [AIR 2007 SC1517], which found that “an arbitration agreement can be enforced by or against the deceased’s legal representatives and does not cease to exist upon the death of any party.”
In order to determine that an arbitral agreement and the award are enforceable by or against the deceased’s legal representatives, the Court focused on the literal meaning of a “legal representative” as stated in Section 2(1)(g) of the Act of 1996. Similarly, in Jyoti Gupta v. Kewalsons [2018 SCC OnLine Del 7942], the Delhi High Court ruled that “the mere fact that the arbitration agreement deals with disputes between ‘partners’ does not negate or remove the right of enforcement of such an arbitration agreement vested in the legal heirs of the deceased partner in view of Section 40 of the Act.”
In light of this, the Court decided that, “According to the aforementioned legal exposition in the facts of the present case, clause 15 of the partnership agreement will operate to bind both the petitioners and the respondents since the deceased partner’s legal heirs, specifically Sampat Lal Verma, have stepped into the shoes of the deceased.”
Special Leave Petition is dismissed by the Supreme Court
Case Name- Rahul Verma & Ors. v. Rampat Lal Verma & Ors.
Case No.- Arb.A./6/2024
Bench- Justices JB Pardiwala and R Mahadevan