Partner's Claim For Contribution From Co-Partners Arbitrable Despite Guarantor Status: Delhi High Court

On 5 October, the Delhi High Court held that a partner's claim against co-partners for money paid towards a firm's liability remains arbitrable even if the partner made the payment as a guarantor. It also clarified that the nature of the claim, and not merely the capacity in which the bank proceeded against the partner, determines whether it is covered by the arbitration agreement.

A Division Bench comprising Justices Anil Kshetarpal and Bharat Parashar restored an arbitral award in favour of Krishan Baldev Bansal, who had paid Rs. 23.90 lakh to Union Bank of India towards settlement of dues owed by partnership firm Nova Electro World. The judges observed:

“However, the mere description of the Appellant as a guarantor cannot, in the facts of the present case, conclude the question of arbitrability. The same person was simultaneously a partner of the firm and a guarantor of the firm's cash-credit facility. The Settlement Certificate itself identifies him in both capacities. The relevant inquiry, therefore, is the substance of the claim which he brought before the Tribunal and not merely the capacity in which the Bank proceeded against him.”

The dispute arose from a partnership formed on 15 September 2004 to carry on the business of retailing electronic goods under the name Nova Electro World.

Balbir Singh Tyagi and his wife Mithlesh Tyagi together held a 55% share in the firm, while Yogesh Bansal and his father Krishan Baldev Bansal held the remaining 45%. The firm subsequently availed a Rs. 25 lakh cash-credit facility from Union Bank of India. Bansal, who was one of the partners, also stood as guarantor and furnished his property as security.

After the firm failed to clear the facility, Bansal paid Rs. 23.90 lakh from his own funds towards full and final settlement of the Bank's claim. A settlement certificate dated 28 April 2008 recorded that the account belonged to Nova Electro World and identified Bansal as both a partner and guarantor.

Bansal thereafter sought contribution from his co-partners through arbitration, contending that he had discharged a liability of the partnership firm rather than a personal debt. After deducting his own 10% share amounting to Rs. 2.39 lakh, he claimed Rs. 21.51 lakh from the remaining partners according to their respective partnership shares.

On 11 December 2023, the parties agreed before the sole arbitrator that the award could be confined to Bansal's claim concerning the amount paid to the Bank. By an award dated 23 December 2023, the arbitrator allowed the claim and apportioned Rs. 21.51 lakh among the remaining partners, along with interest at 18% per annum from 28 April 2008.

Balbir Singh Tyagi and Mithlesh Tyagi challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

On 28 November 2025, the District Judge set aside the award, holding, among other things, that Bansal's claim arose from his independent relationship with the Bank as a guarantor and therefore fell outside the arbitration agreement contained in the partnership deed.

The High Court disagreed, holding that the Bank's right to proceed against Bansal as guarantor and Bansal's subsequent claim against his co-partners were distinct matters.

It noted that the underlying cash-credit facility belonged to the partnership firm and that Bansal's payment discharged the firm's dues. His subsequent claim did not concern the validity of the guarantee or seek any relief against the Bank. It concerned the manner in which the firm's discharged liability was to be shared among its partners.

Further, the judges noted that Clause 15 of the Partnership Deed provided for arbitration of disputes concerning the partnership deed or books of accounts. They held that the claim concerning the firm's liability and its adjustment among the partners arose from their inter se financial relationship.

The Bench also rejected the contention that Bansal's failure to consult the other partners before making the payment rendered the claim personal. It held that the issue could have a bearing on the merits of the claim but did not determine its nature or arbitrability.

Moreover, it held that the arbitrator could not be faulted for deciding only Bansal's claim concerning the Bank payment, since the parties had themselves agreed on 11 December 2023 to confine the adjudication to that claim.

Accordingly, the High Court allowed Bansal's appeal, set aside the District Judge's order dated 28 November 2025 and restored the arbitral award dated 23 December 2023.

Appearances for appellant (Krishan Baldev Bansal): Advocates Satish Sahai and Malaika Farhat.

Appearances for Balbir Singh Tyagi and Mithlesh Tyagi: Advocate Deepak R. Dahiya.