ORAL ORDER
1. The present petition has been filed in the name of a partnership firm namely, M/s. Prime Spintex, through its partner namely, Mr. Amit Saigal, as partner as well, seeking reference of a dispute to the Arbitrator in terms of an agreement dated 09.12.2022 between the petitioner No. 1 (partnership firm namely, M/s. Prime Spintex) and respondent No. 1 namely, M/s Kalantry Textile Industries. The other partner of petitioner No. 1-M/s. Prime Spintex namely, Mr. Rahul Jain is impleaded as respondent No. 2 herein.
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2. The statement in the petition is that the petitioner No. 2 and respondent No. 2 are partners of petitioner No. 1 - partnership firm by virtue of a partnership deed executed on 05.11.2014, whereby the partnership firm namely, M/s Prime Spintex came to be formed. The petitioner No. 1 - partnership firm was running a factory for the business of textile furnishing, and had availed financial assistance against its property in a non-agricultural land bearing Survey No. 463 admeasuring 27027 sq. mtrs. at Village Bhayla, Taluka Bavla, District Ahmedabad, from Karur Vysya Bank, Lawrence Road Branch, Delhi.
3. It is stated that the partnership firm was the absolute owner of the land in question and an encumbrance/ charge by way of mortgage came to be created over the said land.
4. Due to turbulent times, the petitioner No. 1 could not repay the loan and thereafter, an OTS proposal was given to the Bank in question. Upon acceptance of the OTS proposal, a Memorandum of Understanding (MOU) was executed on 09.12.2022 between the petitoner No. 1 and respondent No.
1. As per the said MOU, the respondent No. 1 agreed to purchase the property in question for total sale consideration of Rs. 9,60,00,000/- and out of the total sale consideration, it was agreed that the respondent No. 1 shall make payment of Rs. 4,00,00,000/- to the bank as first installment. It was agreed that upon payment of the said amount by respondent No. 1, it will be allowed to remove all plant and machineries for sale to the third party. The result is that by way of a payment of Rs. 4,00,00,000/-, the respondent No. 1 had
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purchased the machineries of the property in question.
5. It was further agreed that simultaneously upon payment of a second installment of Rs. 5,60,00,000/- by the respondent No. 1 to the Bank in question, the property in question being the land as well as the building shall be sold and transferred by the petitioner No. 1, in favour of respondent No. 1 or its nominee as security.
6. On the basis of this arrangement, the sale deed came to be executed in favour of respondent No. 1 on 01.07.2023. The contention is that as per the MOU the proceeds of the sale were required to be adjusted as stated therein and the respondent No. 1 was not meant to be holding on to the land and building in question but was required to sell the same at the earliest so as to repay the loan. The respondent No. 1 however, has delayed the same and avoided the sale on one or the other pretext.
7. The contention is that the dispute between the petitioner No. 1 - partnership firm and the respondent No. 1 arose out of the MOU dated 09.12.2022, terms and conditions whereof has not been adhered to by respondent No. 1.
8. We may note that Mr. Jay Barot, learned advocate has put in appearance on behalf of respondent No. 2, the other partner of the firm to raise a preliminary objection as to the maintainability of the present petition seeking for appointment of Arbitrator on behalf of one of the partners, by stating that he has serious objections to the claim of petitioner
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No.1 for referring the dispute.
9. Reliance is placed on the decisions of the Kerala High Court in the case of P.K. Chandrasekharan Nair Vs. Hindustan Petroleum Corporation [2025 SCC OnLine Ker 12970] and the Bombay High Court in the case of
Shailesh Ranka and Others Vs. Windsor Machines Limited and Another [2023 SCC OnLine Bom 2704] to submit that one of the partner cannot seek appointment of Arbitrator and thereby reference for arbitration without the express authority / consent of the other partner.
10. Referring to Section 19 of the Indian Partnership Act, 1932, it was vehemently argued that the implied authority of a partner to carry on, in the usual way, business of the partnership firm, does not empower him to submit a dispute relating to the business of the firm to Arbitration.
11. This bar in Section 19(2)(a) of the Indian Partnership Act, 1932 has been pressed into service that in view of Section 19(2)(a) of the Indian Partnership Act, 1932, for submitting the dispute related to the business of the firm to arbitration, the express conferment of authority would be necessary in the absence of any usage or custom of trade to the contrary.
12. As there is no implied authority for a partner in absence of any usage or custom of trade to the contrary to submit the dispute, and hence the present petition filed by one of the partner of the firm in the name of the partnership firm cannot be entertained and is liable to be rejected outrightly.
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13. This submission is found to be wholly misconceived for the simple reason that the dispute being raised in the present petition is not in relation to or with regard to the business of the partnership firm namely, M/s prime Spintex, i.e. the petitioner No.1 herein, which is formed of two partners namely, petitioner No.2 and respondent No.2 herein by virtue of the partnership deed executed on 05.11.2014.
14. Section 19 of the Indian Partnership Act, 1932 which is a bone of contention of the learned Counsel for the petitioner may be extracted herein for ready reference:
"19. Implied authority of partner as agent of the firm.—
(1) Subject to the provisions of section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The authority of a partner to bind the firm conferred by this section is called his "implied authority".
(2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to—
(a) submit a dispute relating to the business of the firm to arbitration,
(b) open a banking account on behalf of the firm in his own name,
(c) compromise or relinquish any claim or portion of a claim by the firm,
(d) withdraw a suit or proceeding filed on behalf of the firm,
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(e)admit any liability in a suit or proceeding against the firm,
(f) acquire immovable property on behalf of the firm,
(h) transfer immovable property belonging to the firm, or
(g) enter into partnership on behalf of the firm"
15. Suffice it to say that the dispute herein is with regard to and arising out of the MOU executed between the petitioner No.1 partnership firm namely, M/s Prime Spintex and the respondent No.1 namely, M/s Kalantry Textile Industries. The dispute resolution clause No.5 thereof has been invoked herein by the petitioners, which has no relation or context to the business of the partnership firm. It was an agreement pertaining to the sale of the property of the partnership firm for the purpose of repayment of Bank loan. All other questions as to the propriety of the agreement or the rights and liabilities of the parties under the said agreement cannot be examined by us.
16. For the aforesaid, the objections raised by the learned advocate appearing on behalf of respondent No.2, one of the partners of petitioner No.1 firm (M/s Prime Spintex) are hereby rejected.
17. No plausible objection has been raised by Ms. Shivani Rajpurohit, learned advocate appearing for respondent No.1, who is the signatory of the MOU dated 09.12.2022, out of which the present petition has arisen.
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18. I, therefore, allow the present petition.
19. Noticing the above, I proceed to pass following :
O R D E R
(i) Petition is ALLOWED.
(ii) Mr. Sudhir I. Nanavati, Senior Advocate having address 7th Floor, "Corporate House", Judges Bunglow Road, S.G. Highway, Ahmedabad - 380054, contact number 079- 26841602 and M: 9825005255 is appointed as sole Arbitrator to resolve the disputes between the parties in accordance with the Arbitration Centre (Domestic and International), High Court of Gujarat Rules, 2021. Both parties would be governed by said Rules.
(iii) Registry is directed to communicate this order to the sole arbitrator forthwith by speed post. No order as to costs.
(iv) Consequently, all pending connected application/s, if any, stands disposed of.
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CIVIL APPLICATION NO. 1 of 2026
In view of the order passed in Arbitration Petition, connected Civil Application would not survive and shall stand disposed of accordingly.
(SUNITA AGARWAL, CJ.)
siji
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