Karnataka High Court De-Freezes Bank Accounts of CA Firm Amidst Dissolution Dispute

The High Court of Karnataka has intervened in a high-stakes partnership dispute involving a prominent Chartered Accountancy firm, prioritizing the professional interests of over 185 employees and numerous clients against the disruptive effects of a sudden bank account freeze. By permitting the continuation of firm operations despite a notice of dissolution, the court has established a temporary safeguard to ensure that statutory audit obligations and professional commitments remain unhindered by internal partner conflicts.

Justice K. V. Aravind, sitting as a single judge bench, adjudicated upon a challenge against a Commercial Court order that had left interim applications unresolved. The bench recognized the immediate threat to the firm’s functionality following a notice of dissolution issued by retiring partners, which led to the freezing of all operational bank accounts.

Key Takeaways

Professional Continuity Over Partner Disputes

Internal management conflicts between partners cannot be allowed to jeopardize the professional standing of a firm or its ability to meet time-bound statutory obligations toward third-party clients.

Protection of Employee Livelihoods

Courts will lean towards interim arrangements that protect the interests of a large workforce, such as the 185 employees in this case, by ensuring salary payments remain possible despite dissolution notices.

Primacy of Statutory Deadlines

In professions like accountancy, where specific dates for income-tax and GST filings are mandatory, judicial intervention is justified to prevent irreversible consequences arising from the suspension of firm activities.

Scope of Section 9 Protections

Interim measures under the Arbitration and Conciliation Act, 1996 can be invoked to maintain the status quo and operational integrity of a professional firm until the Arbitral Tribunal decides the validity of a dissolution or retirement.

Impact on Professional Obligations and Employees

The court emphasized that the dispute between partners should not cause professional inconvenience to clients or result in irreversible legal consequences for the firm. It noted that the firm, as an auditor recognized under Section 139, Section 140, and Section 141 of the Companies Act, 2013, has significant professional responsibilities.

The Court, in its reasoning, observed: "The dispute between the partners ought not to be permitted to extend to a situation causing professional inconvenience to the clients of the Firm or resulting in irreversible consequences. The questions as to whether the partnership firm can be dissolved at the will of a partner or whether the matter is one of retirement, and whether there is a specific duration of the partnership, are larger issues which are required to be adjudicated by the Arbitral Tribunal."

The Court has following directions:

"I. Pending consideration of I.A. Nos. I to IV filed under Section 9 of the Arbitration and Conciliation Act, 1996, the petitioners are permitted to continue the professional activities of the partnership firm, namely, Mukunda Shiva and Associates, in the manner in which the firm was functioning immediately prior to issuance of the notice dated 12.09.2026.

II. The partnership Firm is permitted to continue its professional activities and discharge its contractual, statutory and professional obligations, including those arising in respect of its existing clients, subject to the outcome of the proceedings before the Commercial Court.

III. The petitioners are permitted to operate the bank accounts of the partnership Firm to the limited extent necessary for making payments towards salaries, statutory dues, taxes, GST liabilities, professional expenses and other overhead expenses that were being incurred by the Firm prior to issuance of the notice dated 12.09.2026. The Bank Accounts are hereby de-freezed.

IV. The aforesaid arrangement shall remain in force until consideration of I.A. Nos. I to IV filed under Section 9 of the Arbitration Act read with Order XXXIX Rules 1 and 2 of the CPC by the Commercial Court.

V. The Commercial Court shall consider and decide the applications independently and uninfluenced by any of the observations made in this order.

VI. All contentions of the parties are kept open. The parties are directed to cooperate with the Commercial Court for expeditious disposal of the pending applications.

VII. It is submitted that the next date of hearing before the Commercial Court is on 09.10.2026. On that day, both the parties shall endeavour to address their arguments.

VIII. The Commercial Court is requested to expedite and dispose of the pending applications on or before 13.11.2026. With the aforesaid observations and directions, the writ petition stands disposed of."

Ratio

In disputes involving professional partnership firms, the court may grant interim protection under Section 9 of the Arbitration and Conciliation Act, 1996 to ensure the discharge of statutory and professional obligations toward third parties. The status quo of a firm’s operations must be maintained if a freeze on accounts would lead to irreversible consequences for employees and clients, pending the final adjudication of whether the partnership is at will under the Indian Partnership Act, 1932 or subject to specific retirement clauses in the partnership deed.

Background

The petitioners and respondent Nos. 1 and 2 are partners in Mukunda Shiva and Associates, a Chartered Accountancy firm operating for over 22 years. A dispute arose when the respondents expressed a desire to retire, subsequently issuing a notice of dissolution on September 12, 2026, claiming the partnership was 'at will' under Section 43 of the Indian Partnership Act, 1932. This led to a debit freeze on the firm's accounts by HDFC Bank.

The petitioners moved the Commercial Court under Section 9 of the Arbitration and Conciliation Act, 1996 read with Order XXXIX Rules 1 and 2 of the Code of Civil Procedure, 1908. The respondents, relying on the Supreme Court judgment in V. Sumitra Reddy and Others v. K. Ranganadha Reddy and Others, argued that upon notice of dissolution of a partnership at will, the firm stands dissolved and cannot be continued. However, the High Court noted that the partnership deed contained an arbitration clause for all disputes, including dissolution. The Court held that a prima facie case was made out for an interim arrangement to protect the 185 employees and the clients whose tax and GST filings were due in October 2026. The writ petition was disposed of with directions to the Commercial Court to decide the pending applications by November 13, 2026.

Case Details:
Case No.: WP No. 29833 of 2026
Neutral Citation: 2026:KHC:56154
Case Title: Mr. CA. Mukunda and Others v. Mr. CA. Shiva Prakash H S and Others
Appearances:
For the Petitioner(s): Sri. K. Arun Kumar, Senior Counsel for Smt. Prerana Ponnappa, Advocate
For the Respondent(s): Sri. B. Vachan, Advocate for C/R1

Source: 2026 CaseBase(KAR) 26200