The Delhi High Court has held that an interference with an Arbitral Award under Section 37 of the Arbitration and Conciliation Act, 1996 cannot go beyond the boundaries established by Section 34. Further observing that, The scope of a challenge under Section 34 of the Arbitration & Conciliation Act, 1996 is limited to the grounds stipulated therein.
On the issue of whether the firms Classic Processors and Aashika Textiles stood dissolved on the date of closure of the business. The court found that there was closure of the business of the two firms though there was no dissolution.
Relying on the precedents, The court followed the principle that if there is a breach of agreement and conduct is destructive of mutual confidence, certainly such conduct gives rise to a ground for dissolution of the partnership. “While mere disagreement or quarrel arising from impropriety of partners is not a sufficient ground for dissolution, interference should not be refused where it is shown to the satisfaction of the Adjudicating Authority that the conduct of a partner has been such that it is not reasonably practicable for other partners to carry on the business in partnership,” observed the Delhi High Court while drawing a caveat to the meaning of ‘destructive’ of mutual confidence.
The court upheld the arbitrator’s decision on the grounds of respondents sending notices to various authorities unilaterally and disposed of the assets which was construed as destructive of mutual confidence.
The court observed that the date of closure cannot be deemed to be a date of dissolution of partnership since all the assets of the partnership were yet to be distributed.
Justice Neena Bansal Krishna held that a bare reading of the Section 69 (1) of the Partnership Act, 1932 states that no claim can be filed in the Civil Court by any of the partner of the unregistered Firm against the other partners of the Firm, in case it is not registered. However, The bar of Section 69 of Partnership Act is not applicable to the arbitral proceedings.
The court relied on a judicial precedent from the Supreme Court observing the bar of Section 69 of Partnership Act does not come within the expression “other proceedings” as used in Section 69(3) of the Partnership Act.
The petition was filed before the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the Award which held that the two unregistered Partnership Firms were not dissolved on the date of closure of business, although the business of both the Partnership Firms had been closed on the said date and dissolved both the Firms from the date of Award.
The judgment was pronounced on October 28, 2024.
The judgment was delivered by Justice Neena Bansal Krishna.
