Dispute Over Partnership Deed Validity Cannot Defeat Arbitration Agreement: Calcutta High Court

The Calcutta High Court on 18 May held that a party cannot defeat an arbitration agreement merely by disputing the validity or genuineness of partnership deeds containing the arbitration clause. It observed that allowing such a challenge at the referral stage would undermine the doctrine of Kompetenz-Kompetenz under Section 16 of the Arbitration and Conciliation Act.

Justice Gaurang Kanth allowed a Section 11 petition filed by Juli Bhagat and appointed Advocate Chayan Gupta as sole arbitrator to adjudicate disputes arising from partnership deeds executed with Alok Bhagat and other family members concerning management of hotel properties of Late Arvind Bhagat. He observed:

“It would be a manifest incongruity to hold that namely because a party disputes the validity of the deed containing the arbitration clause, the Court must therefore refuse to refer the dispute to arbitration. Such an approach would effectively enable a party to defeat the arbitration agreement merely by raising a challenge to the underlying document, which is precisely what the doctrine of Kompetenz-Kompetenz, as enshrined in Section 16 of the Act, seeks to prevent.”

The dispute arose from two Partnership Deeds dated 29 March 2023 and 1 December 2023 executed between Juli Bhagat and the respondents for management of Hotel Meera International and Meera Marriage Hall cum Copper Hundi Restaurant at Asansol.

The petitioner claimed a 40% share, while the respondents collectively held 60%. Disputes later arose over management of the partnership business, following which Juli Bhagat invoked arbitration through a notice dated 3 May 2025. The respondents disputed the existence and authenticity of the deeds and alleged that the documents were forged and fabricated.

The Court noted that both Partnership Deeds contained Clause 19 providing for arbitration of disputes arising from the partnership business and hotel properties, and held that the existence of an arbitration clause was sufficient at the referral stage despite challenges to the validity of the underlying documents. It held:

“Applying these settled legal principles to the facts of the present case, this Court finds that both Partnership Deeds dated 29.03.2023 and 01.12.2023, as placed on record, bear the signatures of the Petitioner as well as the Respondents, and both contain Clause 19, which constitutes a clear and unambiguous arbitration clause providing for the resolution of disputes between the parties through arbitration. The existence of Clause 19 in the Partnership Deeds, prima facie, establishes the existence of an arbitration agreement within the meaning of Section 7 of the Act.”

Rejecting objections of forgery and invalidity, the Bench held that such issues required evidence and fell within the arbitral tribunal's jurisdiction.

Accordingly, the High Court found a prima facie arbitration agreement under Clause 19 and appointed Advocate Chayan Gupta as sole arbitrator to adjudicate disputes arising out of the partnership arrangements.