The Delhi High Court has restored the arbitral award holding that a partner’s claim for contribution after discharging the firm’s bank liability is arbitrable under the partnership deed, not a personal guarantor dispute. The Court clarified that a contemporaneous order-sheet recording the parties’ submission that the award may be passed only on a particular claim is sufficient to confine the scope of adjudication, and the absence of a separate written application or statement on oath does not invalidate the award.
Where the parties agree to narrow the disputes before the arbitrator, the arbitrator cannot be faulted for not adjudicating the other reliefs originally pleaded, as those reliefs cease to remain live issues for determination. A claim by one partner against the other partners for contribution in respect of an amount paid towards discharge of the partnership firm’s liability is a dispute arising from the partnership relationship and falls within an arbitration clause covering disputes relating to the partnership deed and books of accounts, added the Court.
The High Court also clarified that the mere fact that the claimant partner also stood as guarantor to the bank does not convert the inter se contribution claim into a personal dispute outside the scope of the arbitration. The substance of the claim, and not the capacity in which the bank proceeded, determines arbitrability.
Briefly, a partnership firm called M/s Nova Electro World was set up on 15 September 2004 between Yogesh Bansal and Balbir Singh Tyagi for retailing electronic goods, with the Appellant, Krishan Baldev Bansal (Yogesh’s father), and Mithlesh Tyagi (Balbir’s wife) joining as partners. The Appellant and Yogesh together held 45% share, while Balbir and Mithlesh held 55%. During the subsistence of the partnership, the firm availed a cash-credit facility of Rs.25 lakh from Union Bank of India, Janakpuri Branch, and the Appellant stood as guarantor by furnishing security in respect of his property.
The firm failed to discharge the liability, leaving an outstanding amount of approximately Rs.23.76 lakh. The Appellant thereafter deposited Rs. 23.90 lakhs from his own funds towards full and final settlement of the Bank’s claim, and a Settlement Certificate dated April 28, 2008, was issued by the Bank recording that the account stood in the name of the firm and that the payment was towards the dues of the firm. The Appellant raised a claim before the Sole Arbitrator seeking contribution from the other partners after deducting his own 10% share, leaving a balance of Rs. 21.51 lakhs.
On Dec 11, 2023, the parties and their counsel submitted before the Sole Arbitrator that the award may be passed only on the claim made by the Appellant concerning the Bank payment. The Sole Arbitrator passed the award dated Dec 23, 2023, in the Appellant’s favour, apportioning the amount among the other partners with interest at 18% per annum from April 28, 2008. The Respondents challenged the award under Section 34 of the Arbitration and Conciliation Act, and the District Judge set aside the award on the grounds that the Sole Arbitrator had failed to adjudicate the other reliefs and that the Bank-payment claim was beyond the scope of the arbitration.
The Division Bench comprising Justice Anil Kshetarpal and Justice Bharat Parashar observed that the order-sheet dated Dec 11, 2023, was a contemporaneous record of the proceedings and recorded the parties’ submission that the award may be passed only on the claim made by Respondent No.3 (the Appellant). The Court noted that the arbitral award explained this understanding by recording that the parties had submitted that the award may be passed only on the claim concerning the loan amount paid by Respondent No.3 to the Bank as guarantor, and that the other claims need not be discussed and decided.
The Court further observed that the Settlement Certificate dated April 28, 2008, expressly recorded that the account was in the name of M/s Nova Electro World and that the Appellant, described as ‘one of the partners and guarantors of the account’, had paid Rs. 23.90 lakhs towards full and final settlement of the dues of the firm. The Court noted that the Sole Arbitrator did not mechanically accept the Appellant’s claim for the entire amount paid, but excluded the Appellant’s own 10% share and apportioned the balance among the other partners in accordance with their respective partnership shares.
The Court also observed that the Sole Arbitrator had noticed the objection regarding arbitrability, and recorded that no such objection had been raised in the written statement. The Court further observed that the Respondents had not led any evidence to establish that the amount paid by the Appellant was not a liability of the partnership firm.
