Supreme Court of India: Whether Legal Heirs of a Deceased Partner being Non-Signatories to the Partnership Deed can be bound by the Arbitration Agreement
In Rahul Verma & Ors. v. Rampat Lal Verma & Ors. 2025 INSC 296, the Supreme Court of India decided the issue of whether the legal heirs of a deceased partner in a partnership firm, being non-signatories to the partnership deed and in the absence of their explicit consent, can still be bound by the arbitration agreement prescribed therein. Additionally, the Supreme Court also dealt with the issue of whether the right to sue for the rendition of accounts survive to the legal heirs of the deceased partner, entitling them to invoke the arbitration clause in the partnership deed
Factual Matrix
In the facts of the case, the dispute arose between a partner of a partnership firm consisting the legal heirs of another deceased partners. The partnership firm consisted of three partners. Out of three, 02 unfortunately passed away. The surviving partner filed a suit before the commercial court for certain disputes accruing out of the partnership deed. Clause 15 of the partnership deed specified the circumstances under which the parties may resort to arbitral proceedings
In this suit, the legal heirs of the deceased partners filed an application under section 8 of the Arbitration & Conciliation Act, 1996 (‘Indian Arbitration Act’) seeking stay of suit in favour of arbitration. This application was dismissed which led legal heirs of the deceased partners to file an appeal under Section 37(1)(a) of the Indian Arbitration Act. The appeal court quashed the decision of the Section 8 court which led to the appeal in Supreme Court in the present proceedings.
Issues before the Court
- Whether the legal heirs of a deceased partner in a partnership firm, being non-signatories to the partnership deed and in the absence of their explicit consent, can still be bound by the arbitration agreement prescribed therein?
- Whether the right to sue for the rendition of accounts survive to the legal heirs of the deceased partner, entitling them to invoke the arbitration clause in the partnership deed?
Decision of the Supreme Court
- An arbitration agreement does not cease to exist on the death of any party and the arbitration agreement can be enforced by or against the legal representatives of the deceased.
- The Court emphasized on the definition of a ‘legal representative’ under Section 2(1)(g) of the Indian Arbitration Act to hold that an arbitral agreement and the award is enforceable by or against the legal representatives of the deceased. (Ravi Prakash Goel v. Chandra Prakash Goel & Anr.) (2008) 13 SCC 667.
- Section 2(1)(g) of the Indian Arbitration Act reads as under:-
(g) “legal representative” means a person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting;
- An arbitration agreement does not stand discharged on the death of a partner and it can be enforced by the legal heirs of the deceased-partner. (Jyoti Gupta v. Kewalsons & Ors 2018 SCC OnLine Del 7942).
- Merely because the arbitration agreement refers to the disputes between ‘partners’, it cannot bar the legal heirs from seeking their remedies by virtue of the arbitration agreement. (Jyoti Gupta (supra)).
- 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.
- It is further substantiated by Section 35 of the Indian Arbitration Act which imparts the touch of finality to an arbitral award and says that the award shall have binding effect on the “parties and persons claiming under them”. (Ravi Prakash (supra)).
- Persons claiming under the rights of a deceased person are the personal representatives of the deceased party and they have the right to enforce the award and are also bound by it. (Ravi Prakash (supra)).
- Further, in light of Section 40 of the Indian Arbitration Act, 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.
- Section 40 of the Indian Arbitration Act reads as under:-
40. Arbitration agreement not to be discharged by death of party thereto.
(1) An arbitration agreement shall not be discharged by the death of any party thereto either as respects the deceased or as respects any other party, but shall in such event been forceable by or against the legal representative of the deceased.
(2) The mandate of an arbitrator shall not be terminated by the death of any party by whom he was appointed.
(3) Nothing in this section shall affect the operation of any law by virtue of which any right of action is extinguished by the death of a person.
Applying above position of law on the facts of the present case, since legal heirs of the deceased partner have stepped into the shoes of the deceased, clause 15 of the partnership agreement will operate to bind both the surviving partner and the legal heirs of the deceased partner. Accordingly, the Supreme Court upheld the decision of the Section 37 Court.