India: Arbitration Agreement Enforceable By Or Against Legal Heirs: Calcutta High Court

The Calcutta High Court (High Court), in the recent case of Dr. Papiya Mukherjee v. Aruna Banerjea & Anr.,¹ has held that an arbitration agreement will not be discharged by the death of any of the parties. Being a signatory or not, the legal representatives of the deceased party will be bound by the agreement. Thus, the High Court ruled that an arbitration agreement will be enforceable by or against the legal representatives of the deceased party.

Brief Facts

The matter pertains to an application filed under Section 11 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). Dr. Papiya Mukherjee, the applicant, is one of the partners of a pathological laboratory being run by virtue of the original partnership deed which was re-constituted from time to time. In 1980, a fresh partnership deed was executed between Dr. Bonbehari Banerjee, Dr. Dhrubajyoti Banerjea and the applicant. When Dr. Bonbehari Banerjee passed away in 1992, Dr. Dhrubajyoti Banerjea and the applicant entered into another deed of partnership for running the said laboratory business. As Dr. Dhrubajyoti Banerjea was of old age, he had executed the power of attorney in favour of his wife, Aruna Banerjea, who is the first respondent in the instant case. In 2015, Dr. Dhrubajyoti Banerjea also passed away.

The applicant contended that, as per the terms of clause 9 of the partnership deed, the respondents being surviving legal heirs and successors of Dr. Dhrubajyoti Banerjea, ought to have substituted him as the partners. The appellant alleged that after the death of Dr. Dhrubajyoti Banerjea, the first respondent started committing various illegalities in relation to the business of the firm. Therefore, the applicant had filed an application under Section 9 of the Arbitration Act in which a restraining order was passed against the respondents on 16 March 2016. Later, an arbitrator was appointed and the arbitration proceedings continued for more than 4 (four) years in which both the parties had actively participated. Thereafter, since talks of settlement took place, the arbitration proceedings did not proceed further. Around December 2019, the first respondent allegedly again started creating trouble. Therefore, the applicant served a notice invoking the arbitration clause and making a request to the respondent to appoint the arbitrator. However, the respondent denied the request by taking the stand that there was no valid arbitration agreement between the parties.

Issue

Whether an arbitration agreement gets discharged with the death of any of the parties/ signatories?

Held

The applicant submitted that after the death of Dr. Dhrubajyoti Banerjea, respondents being his legal heirs were bound by the arbitration agreement. The applicant also emphasised on the fact that an arbitration had already taken place earlier. On the other hand, the respondents submitted that, after the demise of Dr. Dhrubajyoti Banerjea, in terms of Sections 46 and 48 of the Indian Partnership Act 1932 (Partnership Act), the applicant has only limited rights relating to rendition of account and that the applicant has no right, title and interest in the partnership property.

The High Court noted that respondents are legal heirs/ successors of Dr. Dhrubajyoti Banerjea. In this regard, the High Court referred to Section 40 of the Arbitration Act, which provides that an arbitration agreement will not be discharged by death of party thereto and will be enforceable by or against the legal representatives of the deceased. Further, the High Court also referred to Section 42 of the Partnership Act which provides for dissolution of partnership firm by the death of a partner. Even in terms of Section 46 of the Partnership Act, on the dissolution of the firm, every partner or his legal representative is entitled to, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed amongst the partners or their representatives according to their rights. Lastly, while Section 47 of the Partnership Act provides for continuing authority of partners for purposes of winding up, Section 48 of the Partnership Act provides for mode of settlement of account after dissolution.

The High Court observed that the applicant had placed reliance on the decision of the Hon'ble Supreme Court in Branch Manager, Magma Leasing and Finance Limited and Anr. v. Potluri Madhavilata and Anr, (2009) 10 SCC 103, wherein it had been held that with the termination of the contract arbitration clause neither perishes nor becomes inoperative. Similarly, in another decision in the matter of Agri Gold Exims Ltd. v. Sri Lakshmi Knits & Wovens and Ors., (2007) 7 SCC 686, it was held that Section 8 of the Act is pre-emptory in nature and in a case there exists an arbitration agreement, the Court is under obligation to refer the parties to arbitration in terms of the arbitration agreement.

The High Court also referred to the decision in Ravi Prakash Goel v. Chandra Prakash Goel and Anr., 2008 13 SCC 667 to reiterate that by virtue of Section 40 of the Arbitration Act, an arbitration agreement would not be discharged by the death of any party thereto. The arbitration agreement would be enforceable by or against the legal representatives of the deceased. Further, the arbitrator in such circumstances would continue to be vested with the authority to adjudicate upon the matter.

Considering the factual scenario in hand and the case laws presented, the Calcutta High Court was of the opinion that after the death of Dr. Dhrubajyoti Banerjea, the respondents being his legal representatives are bound by the agreement to the extent provided by law. Therefore, while allowing the Section 11 application, the High Court held that not only did the arbitration agreement in the form of partnership deed exist but even after the death of Dr. Dhrubajyoti Banerjea, the respondents being his legal representatives are bound by the agreement to the extent provided by law, despite of them not being a signatory to the agreement.

Comments

The instant case follows the well-settled position that an arbitration agreement is not discharged merely upon the death of a party to such agreement but shall be enforceable by or against the legal representatives of the deceased. The rationale behind such a provision is to ensure that there is continuity in arbitral proceedings in cases involving the same subject matter.

Footnote

1 Dr. Papiya Mukherjee v. Aruna Banerjea & Anr., 2022 SCC OnLine Cal 595.

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