Bombay High Court Appoints Arbitrator in Family Partnership Dispute, Refuses to Refer Non-Signatory Partners and Trust to Arbitration
Facts
The applicants, Hemant D. Shah HUF through its Karta Hemant D. Shah and Kokila H. Shah, filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of a sole arbitrator.
The dispute arose out of a Partnership Deed dated 9 December 1985 relating to the firm M/s Prospective Traders. The applicants invoked the arbitration clause in the said partnership deed.
An earlier arbitral award dated 15 April 2016 had been set aside by the Bombay High Court on 15 October 2019 under Section 34 of the Arbitration Act. Thereafter, the applicants issued a fresh notice invoking arbitration under Section 21 on 8 March 2024 and filed the present Section 11 application.
Respondent Nos. 1 and 2 were parties to the 1985 partnership deed. Respondent Nos. 3 and 4, however, were not signatories. The applicants sought to refer them also to arbitration on the ground that they were later connected with the firm and claimed rights through or under the original partnership arrangement.
Issues
- Whether the Section 11 application was barred by limitation.
- Whether fresh arbitral proceedings after setting aside of an earlier award must commence by issuance of notice under Section 21.
- Whether Respondent Nos. 1 and 2, being parties to the 1985 partnership deed, could be referred to arbitration.
- Whether Respondent Nos. 3 and 4, who were non-signatories to the 1985 partnership deed, could also be referred to arbitration.
- Whether Respondent Nos. 3 and 4 could be treated as persons claiming “through or under” the original signatories or as veritable parties to the arbitration agreement.
Petitioner’s Arguments
The applicants argued that the 1985 Partnership Deed contained a valid arbitration clause and that disputes arising out of the partnership had to be referred to arbitration.
They submitted that the earlier award was set aside on 15 October 2019, and therefore fresh arbitration proceedings were permissible.
On limitation, the applicants argued that the period between commencement of the earlier arbitration and setting aside of the award had to be excluded under Section 43(4) of the Arbitration Act. They further relied on the Supreme Court’s COVID-19 limitation extension orders, under which the period from 15 March 2020 to 28 February 2022 stood excluded.
The applicants contended that the fresh Section 21 notice dated 8 March 2024 was within limitation, and once such notice was issued, limitation stopped running for commencement of arbitral proceedings.
As against Respondent Nos. 3 and 4, the applicants argued that although they were not signatories to the 1985 Partnership Deed, they were connected with the same firm and derived rights from the partnership structure. Therefore, according to the applicants, they were bound by the arbitration agreement as persons claiming “through or under” the original parties.
Respondent’s Arguments
Respondent Nos. 1 and 2 argued that the application was barred by limitation. According to them, the right to apply under Section 11 arose when the earlier arbitral award was set aside on 15 October 2019. Therefore, the applicants ought to have filed the Section 11 application within three years from that date.
They submitted that once an award is set aside, a fresh Section 21 notice is not mandatory, and the party should directly approach the High Court for appointment of an arbitrator.
Respondent Nos. 3 and 4 opposed reference to arbitration on the ground that they were not signatories to the 1985 Partnership Deed and had never agreed to its arbitration clause.
They submitted that they became connected with M/s Prospective Traders only under separate partnership deeds of 2009, to which the applicants were not parties. They further argued that the applicants had earlier agreed in previous proceedings that the award would not bind Respondent Nos. 3 and 4.
Analysis of the Law
The Court examined Sections 21 and 43(4) of the Arbitration and Conciliation Act, 1996.
Section 21 provides that arbitral proceedings commence when a request for reference of the dispute to arbitration is received by the respondent, unless otherwise agreed by the parties.
Section 43(4) provides that where an arbitral award is set aside, the period between commencement of arbitration and the date of the Court’s order setting aside the award must be excluded while computing limitation for fresh proceedings concerning the same dispute.
The Court held that after an award is set aside, fresh arbitral proceedings must be commenced. For such fresh commencement, Section 21 becomes relevant.
The Court found that the fresh Section 21 notice dated 8 March 2024 was within limitation, after applying the statutory exclusion under Section 43(4) and the COVID-19 limitation exclusion. The Section 11 application was also within three years from the Section 21 notice.
On non-signatories, the Court held that arbitration is founded on consent. A non-signatory can be referred to arbitration only in limited situations, such as where it is a veritable party, falls within the group of companies doctrine, or claims through or under a signatory.
Precedent Analysis
The Court relied on Harkisandas Tulshidas Pabari v. Rajendra Anandrao Acharya, where the Bombay High Court held that after an award is set aside, fresh arbitral proceedings must be commenced, and for taking benefit of Section 43(4), the procedure under Section 21 becomes mandatory.
The Court distinguished Vardhaman Builders v. Narendra Balasaheb Ghatge, noting that in that case both the Section 21 notice and Section 11 application were time-barred, and the Court was not directly deciding whether fresh arbitration commenced from Section 21 notice or Section 11 application.
The Court also referred to Bhagheeratha Engineering Ltd. v. State of Kerala, where the Supreme Court held that Section 21 is relevant for determining commencement of arbitral proceedings and reckoning limitation.
On non-signatories, the Court relied on Cox and Kings Ltd. v. SAP India Pvt. Ltd., where the Supreme Court explained the group of companies doctrine and the “claiming through or under” principle.
The Court also relied on Hindustan Petroleum Corporation Ltd. v. BCL Secure Premises Pvt. Ltd., where the Supreme Court held that the referral court must make a prima facie determination on whether a non-signatory is a veritable party before referring it to arbitration.
Court’s Reasoning
The Court held that the arbitration agreement between the applicants and Respondent Nos. 1 and 2 was undisputed. Therefore, they could be referred to arbitration.
On limitation, the Court rejected the argument that the Section 11 application had to be filed within three years from the date on which the earlier award was set aside. The Court held that fresh arbitral proceedings commence upon issuance and receipt of a Section 21 notice.
The Court found that, after excluding the earlier arbitration period under Section 43(4) and the COVID-19 limitation period, only 915 days were counted for limitation before the fresh Section 21 notice. Therefore, the proceedings against Respondent Nos. 1 and 2 were within limitation.
However, the Court refused to refer Respondent Nos. 3 and 4 to arbitration.
The Court held that Respondent Nos. 3 and 4 were not signatories to the 1985 Partnership Deed. They were parties to separate 2009 partnership arrangements and had no consent-based legal relationship with the applicants under the 1985 deed.
The Court rejected the argument that Respondent Nos. 3 and 4 should be referred merely because an award against only Respondent Nos. 1 and 2 may become difficult to enforce. The Court held that convenience, equity or enforceability concerns cannot override the foundational requirement of consent in arbitration.
The Court also held that the 1985 partnership arrangement and the 2009 partnership arrangements operated in separate orbits. Therefore, Respondent Nos. 3 and 4 could not be treated as persons claiming “through or under” the 1985 partnership deed.
Conclusion
The Bombay High Court partly allowed the Section 11 application.
The Court referred the applicants and Respondent Nos. 1 and 2 to arbitration and appointed Justice Sadhana Jadhav, former Judge of the Bombay High Court, as the sole arbitrator.
However, the application was dismissed against Respondent Nos. 3 and 4, as they were non-signatories to the 1985 Partnership Deed and could not be compelled to arbitrate without consent.
All contentions were kept open to be raised before the arbitrator.
Case Details
Case: Hemant D. Shah HUF & Anr. v. Chittaranjan D. Shah HUF & Ors.
Court: Bombay High Court
Case Number: Commercial Arbitration Application No. 184 of 2026
Judge: Justice Arun R. Pedneker
Date: 6 July 2026
Result: Application allowed against Respondent Nos. 1 and 2; dismissed against Respondent Nos. 3 and 4; Justice Sadhana Jadhav appointed as sole arbitrator.
