Retired partner dragged back to arbitration — court says 'let tribunal decide'
Supreme Court refuses to halt arbitration despite claims of no valid agreement and improper notice, leaving all disputes for the arbitrator.
5
years.
Supreme Court refuses to halt arbitration despite claims of no valid agreement and improper notice, leaving all disputes for the arbitrator.
He thought retiring from a partnership meant no more disputes. Then the arbitration notice arrived — and the court just passed it on.
Mohammed Masroor Shaikh had been a partner in three firms operating under the name M/s M.M. Developers. In September 2014, his co-partner retired. A deed was signed — the paper felt thin, almost casual for a document that would later be pried open in court. Five years later, a lawyer's letter arrived: the retired partner was invoking the arbitration clause in that very retirement deed, claiming disputes had arisen with the continuing partners. Nobody responded. That silence — heavy, deliberate, unanswered — launched a legal journey that would take Shaikh all the way to the Supreme Court, only to be told that he should have answered the letter.
When the retirement deed came back to life
The deed of retirement-cum-continuation dated September 12, 2014, was meant to be a clean break. The retired partner stepped away from the three partnership firms. The remaining partners, including Shaikh, carried on. That, at least, was the plan.
But by February 2019, the retired partner believed the continuing partners had done something that entitled him to seek relief. He sent an arbitration notice through his advocate, invoking Clause 19 of the retirement deed — the arbitration clause. The notice demanded that disputes be resolved by an arbitrator. The silence that followed was absolute: no reply, no acknowledgment, no gesture of engagement.
When silence is the reply, the law allows the sender to move the court. The retired partner filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (the provision that allows a party to ask a court to appoint an arbitrator when the other side refuses to cooperate) before the Bombay High Court. The High Court appointed a sole arbitrator in March 2020.
The notice that may never have arrived
Shaikh’s first defence was procedural: he claimed he was never properly served with notice of the court proceedings. The High Court had proceeded based on an affidavit of service filed by the retired partner’s advocates — a document stamped and sworn, its paper crisp with formality — who stated they had served Shaikh in accordance with the long-standing practice on the Original Side of the Bombay High Court. Shaikh said he knew nothing about it until the arbitrator was already appointed.
The Supreme Court examined this claim and found it unconvincing. Relying on the precedent in SBP & Co. v. Patel Engineering Ltd., the bench noted that service of notice by advocates in line with the consistent practice of the Bombay High Court, supported by an affidavit of service, is valid. The court is entitled to act on such service. Shaikh’s argument that he had been kept in the dark did not persuade the judges.
Why the arbitrator got to decide first
Once the arbitrator was appointed, Shaikh’s advocate appeared before the tribunal and raised objections under Section 16 of the Arbitration Act (the provision that allows an arbitral tribunal to rule on its own jurisdiction — including whether a valid arbitration agreement exists). Shaikh argued that there was no valid arbitration clause covering disputes between a retiring partner and continuing partners. He also argued that the claim was barred by limitation — that too much time had passed since the retirement for any dispute to be raised.
The arbitral tribunal rejected these objections in May 2021. The order was brief, matter-of-fact — the tribunal saw no reason to halt proceedings. Shaikh then filed petitions under Section 34 of the Act (the provision for challenging an arbitral award before a court) to set aside that order. Simultaneously, he approached the Supreme Court challenging the original appointment order itself.
Meanwhile, the arbitral tribunal had also allowed an application under Section 17 of the Act (the provision for interim measures ordered by a tribunal), granting relief to the retired partner. That order was left undisturbed by the Supreme Court.
The court's central reasoning
The Supreme Court bench of Justice Abhay S. Oka and Justice Indira Banerjee delivered its judgment on February 2, 2022. The courtroom was quiet — the kind of silence that settles before a judgment is read. The core of the decision rested on a well-established principle drawn from the precedent in Vidya Drolia & Others v. Durga Trading Corporation: when a court is dealing with a petition under Section 11 of the Arbitration Act, and the contentions about whether the dispute is capable of being arbitrated are "plainly arguable," the court should refer the matter to arbitration and leave the question of arbitrability to the tribunal.
The bench stated that "while dealing with a petition under Section 11 of the Arbitration Act, the court by default would refer the matter to arbitration when contentions relating to non-arbitrability are plainly arguable. In such cases, the issue of non-arbitrability is left open to be decided by the Arbitral Tribunal."
In other words, the High Court was right to appoint an arbitrator even if Shaikh had strong arguments about the validity of the arbitration clause. Those arguments were for the arbitrator to hear, not for the court to pre-judge at the appointment stage.
The Supreme Court also relied on the principle from State of Orissa and another v. Damodar Das, reinforcing that where a Section 11 order has not concluded issues of non-arbitrability or limitation, and the party has available recourse through pending Section 34 petitions to raise all permissible contentions, no case for interference with the appointment order is made out.
The court further noted that Section 16(6) of the Arbitration Act (the provision that makes a challenge to the tribunal's jurisdiction non-final until the award is challenged) meant that Shaikh's objections under Section 16 were properly before the tribunal and could be revisited in the Section 34 proceedings. The doors of the High Court remained open.
THE PLAY: When a Section 11 petition is filed, raise all objections about non-arbitrability before the court at the appointment stage — but if the court appoints an arbitrator anyway, immediately raise the same objections before the tribunal under Section 16 and preserve the challenge through a Section 34 petition.
The walk-off
The Supreme Court dismissed the appeals, leaving Shaikh to fight his battle before the arbitrator and, if necessary, before the Bombay High Court on his pending Section 34 petitions — exactly where the court believed those battles belonged all along. The operative order made clear that no case for interference was made out, and that all contentions raised by the appellant in his pending Section 34 petitions remained open for adjudication. The file was closed. The silence that had started with an unanswered notice ended with an unanswered appeal.