Court Upholds Challenge, Cites Public Policy Violation in Arbitration Decision
In a significant decision, the Calcutta High Court has set aside an arbitral award that was challenged for rewriting the terms of a partnership agreement without dissolving the partnership firm, a move deemed contrary to public policy. The Division Bench comprising Justices Debangsu Basak and Aryak Dutt delivered the judgment on August 20, 2026, in the case of Sandip Singla v. Jagdeb Chand Gupta.
The case revolved around a partnership dispute between Sandip Singla, the appellant, and Jagdeb Chand Gupta, the respondent. The partners, involved in a business established via a partnership deed dated February 5, 2004, found themselves in arbitration following disagreements. During the arbitration, a Memorandum of Understanding (MoU) was signed, which the appellant claimed was executed under coercion and undue influence, arguing it should not be binding.
The arbitration proceedings concluded with an award on December 4, 2015, which the appellant challenged under Section 34 of the Arbitration and Conciliation Act, 1996. The trial court initially dismissed this petition, leading to the appeal under Section 37 of the same Act.
The High Court scrutinized the arbitrator's decision, noting that the award effectively rewrote the partnership agreement by allowing one partner to manage the business exclusively, without addressing the distribution of losses or the possibility of dissolution. The court emphasized that such an award was beyond the scope of reference and violated public policy.
Furthermore, the court found fault with the arbitrator’s reliance on the MoU without properly assessing its validity, particularly given the appellant's claims of coercion. This reliance was deemed inappropriate, as the MoU did not envisage an indefinite exclusion of one partner from business management, nor did it provide for loss sharing.
The court also addressed arguments concerning Section 69 of the Indian Partnership Act, 1932. It clarified that while this section regulates the filing of suits by unregistered firms, it does not preclude arbitration unless a dissolution is sought, refuting the respondent's claim that arbitration required a dissolution plea.
Ultimately, the High Court concluded that the trial court had erred in applying the parameters under Section 34 when evaluating the challenge to the arbitral award. Consequently, the appeal was allowed, and the arbitral award, along with the trial court’s order, was set aside. The decision underscores the judiciary's role in ensuring arbitral awards adhere to public policy and the terms of reference.
Bottom Line :
Arbitration award rewriting the terms of a partnership agreement without the dissolution of the partnership firm is against public policy and liable to be set aside.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Section 37, Indian Partnership Act, 1932 Section 69, Arbitration and Conciliation Act, 1996 Section 34
Sandip Singla v. Jagdeb Chand Gupta, (Calcutta)(DB) : Law Finder Doc id # 2964531
