Court holds that arbitration clause covers disputes related to partnership firm's property and accounts, while criminal cases proceed independently
In a significant judgment dated October 30, 2026, the Bombay High Court, presided over by Justice Amit Borkar, appointed a sole arbitrator to adjudicate disputes between partners of M/s Prime Kitchen Care, a partnership firm, notwithstanding pending criminal proceedings related to the same transactions. The court ruled that the arbitration clause contained in the Admission-cum-Retirement Deed/Partnership Deed dated March 14, 2014, and the Supplementary Deed dated April 22, 2022, covers disputes concerning the rights, duties, property, and accounts of the partners under the partnership firm.
The applicant, M.D. Nehaluddin, approached the court under Section 11 of the Arbitration and Conciliation Act, 1996, after the respondent, Nusarat Shakil Ahmed, failed to agree to the appointment of an arbitrator. The disputes arose partly due to allegations that the applicant misused the partnership firm's stock in connection with separate companies incorporated by him, including M/s Nejyra Technical Services Private Limited. The respondent also filed a criminal FIR alleging forgery, misuse of digital signatures, and wrongful share transfers.
Rejecting the respondent's contention that the disputes primarily concerned the separate companies and thus fell outside the arbitration clause, the court emphasized that companies have distinct legal identities and are not bound by the partnership arbitration agreement unless they expressly agree. However, disputes between the partners about their mutual rights and obligations under the partnership deed clearly fall within the arbitration clause.
The court also clarified that the appointment of an arbitrator does not impede the ongoing criminal proceedings, which serve a different purpose and jurisdiction. The arbitrator is limited to adjudicating civil and commercial matters arising from the partnership deed and cannot decide criminal liability or conduct a criminal trial.
Addressing the validity of the notice invoking arbitration, the court held that it need not contain a detailed statement of claim or specify an exact monetary amount. The notice sufficiently identified the partnership deed, referred to the disputed use of partnership stock, denied allegations, and invoked the arbitration clause, making it a valid request under Section 21 of the Act.
The court appointed Mr. Ashish Venugopal, Advocate, as the sole arbitrator and laid down procedural directions for communication and conduct of arbitration. It left all substantive issues, including limitation and merits of claims, to be decided by the arbitral tribunal.
This judgment reinforces the principle that courts should refer parties to arbitration wherever a prima facie arbitration agreement exists and that arbitration and criminal proceedings can coexist without one negating the other. The decision highlights the separation of legal entities in corporate and partnership structures and the limited role of courts at the pre-reference stage.
Bottom Line:
Arbitration and Conciliation Act, 1996 - Section 11 - Where partnership deed contains arbitration clause and disputes prima facie relate to rights, duties, stock, accounts and business of partnership firm, appointment of arbitrator cannot be refused merely because connected transactions also involve separate companies, allegations regarding company shares, forged will, or pending criminal proceedings - Non-signatory companies cannot be bound by arbitration agreement in absence of legal basis - Notice invoking arbitration need not contain detailed statement of claim or specific quantified amount.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 11, 16, 21, 43
M.D. Nehaluddin v. Nusarat Shakil Ahmed, (Bombay) : Law Finder Doc Id # 3006977
