Legal Heirs of Deceased Partner Are Bound By Partnership Arbitration Clause, Supreme Court Dismisses SLP

A bench of Justices J. B. Pardiwala and R. Mahadevan heard a special leave petition challenging the Gauhati High Court’s judgment that allowed an arbitration appeal under Section 37(1)(a) of the Arbitration and Conciliation Act, 1996 and set aside an order of the Civil Judge (Sr. Div.), Dibrugarh dismissing a Section 8 petition to refer disputes to arbitration. The appeal turned on whether legal heirs of a deceased partner, non‑signatories to the original partnership deed and in the absence of explicit consent, could be bound by and invoke the arbitration clause in the partnership deed, and whether the right to sue for rendition of accounts survived.

The Court held that the High Court committed no error in holding that the arbitration clause in the partnership deed bound the legal heirs and the surviving partner and that the dispute was referable to arbitration. The Court relied on settled principles that an arbitration agreement did not cease to exist on the death of a party and could be enforced by or against the legal representatives where the right to sue survived. The Court noted that clause 2 of the partnership deed made the partnership “binding upon the heirs of the deceased partner” and that clause 15 provided for arbitration of disputes relating to partnership affairs, including dissolution. The Court, in its reasoning, observed: “It is a well-established position of law that the term ‘partners’ extends to and would include their legal heirs, representatives, assigns or legatees, etc. Persons claiming under the rights of a deceased person are the representatives of the deceased party, and therefore, both the parties to the agreement and their legal heirs are entitled to enforce an arbitral award and are bound by it. In light of Section 40 of the Act of 1996 the existence of an arbitration agreement is not affected by the death of a party to the arbitration agreement. As a consequence, the right to sue for rendition of account also survives, ensuring that the legal representatives can assert or defend claims arising from the partnership agreement.” The Court therefore dismissed the special leave petition and directed that parties bear their own costs.

Background

The dispute arose out of a partnership firm consisting originally of three partners, two of whom died on 24.12.2022 and 21.11.2023. The surviving partner and the legal heirs contested management and dissolution issues. The respondents (original defendants in Commercial Suit No. 02/2024) moved the Commercial Court at Dibrugarh under Section 8 of the Act of 1996 by Misc. (J) Case No. 206/2024 seeking dismissal of the civil suit and a reference to arbitration based on clause 15 of the partnership deed; the Civil Judge dismissed that petition. The respondents then filed an arbitration appeal (Arb. A./6/2024) before the Gauhati High Court, which allowed the appeal on 22.10.2024, holding that clause 2 made the deed binding on heirs and that clause 15 covered disputes regarding dissolution; the High Court concluded Section 42(c) of the Partnership Act, 1932 did not bar reference to arbitration. The present petitioners — legal heirs of the deceased partner — challenged the High Court order by way of SLP.

The Supreme Court examined precedent, notably Ravi Prakash Goel v. Chandra Prakash Goel & Anr. (2008) and the Delhi High Court’s decision in Jyoti Gupta v. Kewalsons (2018), which established that Section 40 of the Arbitration and Conciliation Act, 1996 preserved an arbitration agreement on the death of a party and that legal representatives could enforce or be bound by it where the right to sue survived. Applying those principles to the partnership deed’s express clauses, the Court found no error in the High Court’s conclusion that clause 15 was applicable and that the legal heirs and surviving partner could be bound by and could invoke the arbitration clause. The special leave petition was dismissed and any pending applications were disposed of.

Case Details: Case No.: SLP (C) No. 4330/2025; Reportable citation 2025 INSC 296 Case Title: Rahul Verma & Ors. v. Rampat Lal Verma & Ors. Appearances: For the Petitioner(s): Ms. Shagufa Salim, Advocate For the Respondent(s): Mr. Pavan Kumar Chaturvedi, Advocate