Telangana High Court Allows Retired Partner To Invoke Arbitration Clause In Reconstitution Of Partnership Deed

The Telangana High Court has held that a retired partner could invoke an arbitration clause in a Reconstitution of a partnership deed (retirement deed) because the clause covered disputes between the parties and did not limit arbitration to existing partners.

Referring to Article 12 of the deed, Justice K. Lakshman ruled, “The arbitration clause clearly specifies that the disputes arising between the parties shall be referred to arbitration. It is nowhere stated that disputes between existing partners can only be referred to arbitration. The Applicant was a party to the said agreement, therefore, the questions as to the Applicant's right to invoke arbitration or locus standi do not arise.,”

The ruling came on an arbitration application filed by Kambhampati Venkata Rama Krishna Rao against Amarkrishna Constructions and Developers. The court appointed retired District and Sessions Judge D. Ravindra Sharma as the sole arbitrator to adjudicate the disputes between the parties.

Rao and Amarnadh Kantheti had formed the partnership firm under a deed dated January 4, 2018, for the purchase and sale of immovable properties and construction of residential and commercial buildings. Rao held a 59% share in the profits and losses, while Kantheti held 41%.

The partnership was reconstituted on March 10, 2021. Another Reconstitution of Partnership Deed was executed on March 15, 2023, under which Rao retired from the firm. K. Murali Mohan was inducted as a partner with a 5% share, while Kantheti's share increased to 95%. The court referred to the March 15 deed as the “Retirement Deed”.

The dispute concerned Rao's claim to a share in certain immovable properties of the firm.

According to Rao, at the time of his retirement, Flat No. 402 in Miyapur was registered in the name of his wife. He claimed that its sale consideration of ₹34.16 lakh was adjusted against his capital account and that ₹28.30 lakh was subsequently paid to him by cheque dated March 23, 2023.

Rao claimed that his 59% share in other immovable properties standing in the firm's name as on the date of his retirement had not been included in the settlement.

According to him, Kantheti had assured him that a separate registered document would be executed for his 59% share in Flat Nos. 201 and 401 and 50% shares in Flat Nos. 501 and 502. Rao claimed that the pending work on the semi-finished flats was not completed after his retirement and that his share in the other properties was not transferred to him.

Article 12 of the Retirement Deed provided, "All the disputes and differences in connection with the deed arising between the parties and the legal representatives shall be referred to arbitration.”

Rao invoked the clause through a legal notice dated July 1, 2025, which was served on the firm the following day. He proposed Advocate A. Bhuvana Sunder Reddy as the sole arbitrator. The firm disputed his claims in its reply dated July 28, 2025.

Rao then approached the high court under Sections 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator.

Opposing the application, the firm contended that Rao had voluntarily retired after receiving ₹28.30 lakh as full and final settlement towards all his claims. It relied on Clause 7 of the Retirement Deed, which stated that Rao had received his entire due share from the partnership business as full and final payment and settlement.

The firm also relied on an affidavit dated March 18, 2023, in which Rao had declared that there were no disputes between the partners, that he had received ₹28.30 lakh towards settlement and that there were no immovable properties involved in the firm. The affidavit also stated that he would not make any future claim.

It further contended that Article 12 could be invoked only by existing partners and that Rao, having retired, had no right to initiate arbitration under the clause. The firm also alleged fraud and misrepresentation.

The high court held that the respondent's allegation of misrepresentation did not amount to serious fraud warranting exclusion of the dispute from arbitration. Referring to Supreme Court decisions on fraud and arbitrability, Justice Lakshman observed that only fraud of a serious nature having some implication in the public domain may oust the jurisdiction of an arbitrator.

At the Section 11 stage, the court noted, its inquiry was confined to a prima facie examination of the existence of an arbitration agreement. It found that the parties had agreed through Article 12 to resolve their disputes through arbitration.

The court then examined the wording of Article 12.

It noted that the clause covered “all the disputes and differences, in connection with the said Deed arising between the parties” and did not state that only existing partners could refer disputes to arbitration.

Addressing the firm's objection that Rao could not invoke the clause after his retirement, Justice Lakshman held that the contention did not hold water. Since Rao was a party to the Retirement Deed, the court held that the questions regarding his right to invoke arbitration or locus standi did not arise.

“The Applicant was a party to the said agreement, therefore, the questions as to the Applicant's right to invoke arbitration or locus standi do not arise,” the court observed.

The court accordingly allowed the application and appointed retired District and Sessions Judge D. Ravindra Sharma as the sole arbitrator to adjudicate the disputes between the parties.

It left both sides free to raise all their pleas and defences before the arbitrator.

For Applicant (Kambhampati Venkata Rama Krishna Rao): Advocates Achutha Ram, representing K. Raghava Ramana.

For Respondent ( Amarkrishna Constructions and Developers): Advocate M.S. Chandresh.