The Bombay High Court has held that an arbitration clause contained in a retirement-cum-partnership deed can extend to disputes arising out of a connected Memorandum of Understanding (MOU), even where the MOU itself does not contain an arbitration clause.
The dispute arose after the petitioner, a partner in a development firm undertaking the Ventura Commercial Hub project in Mumbai, exited the partnership through a Retirement-cum-Partnership Deed executed on 16 October 2017. Alongside the retirement deed, three other documents were executed the same day: a Deed of Cancellation, an MOU, and an Allotment Letter granting 5000 sq. ft. of commercial space as security for payment of ₹17.6 crore payable to the retiring partners. The petitioner alleged that the continuing partners failed to honour the payment obligations and sought appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, along with interim protection under Section 9.
The respondents opposed the application, contending that the petitioner’s claim arose from the MOU, which did not contain any arbitration clause, and therefore, the dispute could not be referred to arbitration. They argued that the MOU constituted the principal contract governing the dispute.
Rejecting this objection, Justice Sandeep V. Marne held that the retirement deed, cancellation deed, MOU, and allotment letter were executed together to give effect to a single commercial transaction relating to the petitioner’s exit from the partnership. The Court observed that the MOU merely provided the financial mechanism for payment of consideration arising out of the retirement.
The Court emphasised that the MOU could not be treated as an independent agreement:
“In my view therefore, it can safely be inferred that all the four documents are executed to complete the composite transaction of retirement from the firm on receipt of consideration. Otherwise, the MOU, on its own, has no legs to stand. MOU clearly refers to the Retirement Deed and has been executed to give shape to the manner in which the Petitioner was to retire from the Firm.”
Referring to Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678, and Cox and Kings Ltd. v. SAP India Pvt. Ltd., (2024) 4 SCC 1, the Court reiterated that arbitration clauses in principal agreements may extend to ancillary agreements forming part of a composite commercial transaction.
The Court held that whether the petitioner is entitled to recover the entire ₹17.6 crore consideration with interest or merely reinstatement as a partner must be decided by the arbitral tribunal while adjudicating the parties’ rival claims. At the interim stage, the Court’s concern was only to preserve the subject matter of arbitration. It, therefore, observed that: “Till adjudication of claims of Petitioner in arbitral proceedings, it would be necessary to preserve the premises admeasuring 5000 sq.ft. which form the subject matter of arbitration.”
Accordingly, the Court appointed Smt. Justice Sadhana Jadhav, former Judge of the Bombay High Court as a sole arbitrator to adjudicate the disputes and continued interim protection by directing that five commercial units already placed under the custody of the Court Receiver remain preserved during the pendency of the arbitral proceedings. The respondents were also restrained from creating third-party rights in those units.
Appearances
Mr. Gauraj Shah with Ms. Aakansha Anand i/b M/s. Mahesh Menon & Co. for the Applicant.
Mr. Abhishek Kothari with Mr. Nilesh Gala, Mr. Manish Gala & Mr. Minil Shah for Respondent Nos. 1, 2, 5 and 6 and for Applicant in IAL/30822/2025.
Mr. Kavyal P. Shah with Ms. Gunjan Shah for Respondent No.8.
Mrs. Naina Poojary, Master (Adm.) with Mrs. Mrunal Manjrekar, Section Officer, Court Receiver, High Court, present
