TARUN DHAMEJA VS. SUNIL DHAMEJA & ANR.
, SLP (C) 16377/2024
Bench – Hon’ble CJI Sanjiv Khanna and Hon’ble Justice Sanjay Kumar
Facts –
The dispute arose between the partners of a firm governed by a partnership deed executed on
July 16, 2016. Clause 23 of the deed contained the following arbitration provision: "If any
dispute or difference arises between the partners, their heirs, or claimants, it shall be referred to
arbitration. Arbitration shall be optional, and the arbitrator will be appointed by mutual consent
of the partners. In case of disputes, the jurisdiction of Indore Civil Court shall apply."
Following the death of a partner, disputes emerged among the remaining partners. Tarun
Dhameja (Appellant), the legal representative of the deceased partner, invoked the arbitration
clause and filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996,
seeking the appointment of an arbitrator.
The Madhya Pradesh High Court dismissed the petition, holding that the arbitration clause was
"optional" and could be invoked only through mutual consent. Aggrieved by this decision, Tarun
Dhameja appealed to the Hon’ble Supreme Court, stating that the clause was binding and its
invocation did not depend on mutual agreement.
Issue –
Can an arbitration clause be deemed optional if it requires mutual agreement for the appointment
of an arbitrator or is it required to be deemed to be obligatory on the parties?
Court’s Analysis –
Based upon the binding nature of the Arbitration clause, the court held that, “In our opinion, it
cannot be said that the arbitration clause is optional in the sense that the arbitration clause is non-
existent or that the matter would be referred to arbitration only if all the parties to the dispute
agree to refer the dispute to arbitration”.
In Vidya Drolia vs. Durga Trading Corporation, (2021) 2 SCC 1, the court with the reference of
Fili Shipping Co. Ltd. vs. Premium Nafta Products Ltd., 2007 UKHL 40, made ceratin
observations regarding the construction of the interpretation of the arbitration clause –
The court primarily stated that in order to construe the arbitration clause, the purpose of
such clause is to be looked upon. When the parties have entered into an agreement which may
give rise to disputes, means that the parties to such agreement wants to settle such dispute with
the help of arbitration via an arbitral tribunal, commonly on the grounds of such matters as its
neutrality, expertise and privacy, the availability of legal services at the seat of the arbitration
and the unobtrusive efficiency of its supervisory law.
Vidya Drolia (supra) further referred to the judgment in Oriental Insurance Co. Ltd. vs.
Narbheram Power & Steel (P) Ltd., (2018) 6 SCC 534 and stated that –
While dealing with the arbitration clause in an insurance agreement, the said arbitration
clause shall be strictly construed, relying on the principles of strict interpretation that apply to
insurance contracts.
The arbitration clause can be invoked by an aggrieved party who wants to take recourse to
arbitration, to the extent that there exists a mutual agreement. This does not obliterate or write off
the arbitration clause. In terms of the Arbitration and Conciliation Act, 1996, where parties
cannot agree upon a common name as to who will act as an arbitrator, the court can appoint the
arbitral tribunal. The arbitration clauses have to be read in a pragmatic manner. The Arbitration
agreement hence to be read holistically and not in isolation.
Thus, the intent of the parties while executing the arbitration clause in the Partnership Deed is
clear. Hence, the impugned judgement of the High Court is set aside, and the instant petition
filed by the Appellant under Section 11(6) of the Arbitration and Conciliation Act, 1996, is
allowed.
Subsequently, the Coordinator/Chairman of the Madhya Pradesh Arbitration Centre is directed to
appoint an Arbitrator to adjudicate the disputes between the parties.
