Arbitration Clause In Partnership Reconstitution Deed Not Enforceable Against Non-Signatory: Karnataka High Court

The Karnataka High Court has held that an arbitration clause contained in a partnership reconstitution deed cannot be enforced b a person who has not signed the deed, and that in such circumstances, the court cannot appoint an arbitrator under the Arbitration and Conciliation Act.

Justice Lalitha Kanneganti made the observation in an order dated January 7 while hearing a petition filed by two outgoing partners of Shree Raghavendra Industries, seeking appointment of an arbitrator under an arbitration clause contained in a reconstitution deed dated March 18, 2023.

Rejecting the plea, the court observed, “As rightly contented by the learned counsel appearing for the respondent, the reconstitution deed is not signed by the respondent. When he is not a signatory, the said deed is not binding on the respondent. In those circumstances, this Court cannot appoint an arbitrator as per the clause mentioned in the said agreement.”

The ruling arose from a petition filed under Sections 11(5) and 11(6) of the Arbitration and Conciliation Act, seeking appointment of an arbitrator in relation to disputes among partners of the family-run firm, Shree Raghavendra Industries.

The petitioners, ex-partners, claimed that a reconstitution deed was executed when they decided to retire from the partnership and that the deed contained an arbitration clause governing disputes among partners.

According to them, the respondent, who was the continuing and managing partner, had issued cheques towards settlement of their capital contribution, which were dishonored.

They further alleged misappropriation of firm funds and diversion of assets. They issued legal notices dated April 1, 2025, and May 25, 2024, including a request for appointment of an arbitrator under the arbitration clause in the reconstitution deed.

Opposing the plea, the respondent said he had never signed the reconstitution deed and that the document, including the arbitration clause, was therefore not binding on him.

Agreeing with this submission, the Court held that a reconstitution deed cannot bind a party who has not signed it. As there was no valid arbitration agreement, the Court declined to appoint an arbitrator under Section 11 of the Act and dismissed the petition.