Legal Heirs Can Invoke Arbitration If Partnership Deed Permits Continuation After Death: Orissa High Court Upholds Commercial Court Order

“Clause 15 of Deed Overrides Section 42(c); No Bar on Arbitration by Legal Heirs”, Orissa High Court affirming that legal heirs of a deceased partner can invoke arbitration proceedings if the partnership deed specifically allows continuation of business after the partner’s death.

Justice Dr. S.K. Panigrahi, dismissing the writ petition under Articles 226 and 227 of the Constitution, held that the Commercial Court's rejection of an application under Order VII Rule 11 CPC—seeking dismissal of a Section 9 arbitration petition—did not suffer from any legal infirmity.

The Court clarified that while Section 42(c) of the Indian Partnership Act mandates dissolution on a partner’s death, this is subject to the contract between parties. Here, Clause 15 of the partnership deed expressly permitted continuity with legal heirs.

The petitioner, Narayan Naik, and his late brother Satyabrata Naik were partners in a firm called Jyotsna Alankar, formed via a Partnership Deed dated 22.10.2020. Upon Satyabrata’s death on 10.08.2024, his legal heirs—the opposite parties—sought to invoke arbitration under Clause 16 of the deed, which provided:

“In case of dispute, the matter shall be referred to a single Arbitrator selected and appointed by both the partners and his/her decision shall be final and binding to both the partners.”

They also relied on Clause 15, which stated:

“The firm shall not be dissolved upon the death of any partner and shall continue to be carried on with heir, successor or legal representative of the deceased partner.”

Alleging obstruction by the surviving partner, the opposite parties filed a Section 9 petition before the Commercial Court, Bhubaneswar, seeking interim reliefs including access to the firm’s premises and books of account.

In response, the petitioner filed an application under Order VII Rule 11 CPC, arguing that the opposite parties were not parties to the partnership deed and had no cause of action. The Commercial Court dismissed the application, leading to the present writ before the High Court.

🧾 Legal Heirs Can Invoke Arbitration Where Deed Allows Continuation of Firm

The Court held that Clause 15 of the deed clearly provided for continuation of the partnership even after the death of a partner and explicitly allowed inclusion of legal heirs. It held:

“Clause 15 provides for further non-automatic determination due to death of a partner by stating that ‘the firm shall not be dissolved upon the death of any partner and shall continue to be carried on with heir, successor or legal representative of the deceased partner’.” [Para 34]

Even though no formal reconstitution deed was executed between the surviving partner and the legal heirs, the Court found that this absence itself became a dispute referable to arbitration:

“The surviving partner and the legal heirs have to enter into a reconstituted/amended Partnership Deed for this Clause to have any effect in law. The same having not been done... is another dispute which is referable to arbitration...” [Para 35]

⚖️ Commercial Court Rightly Dismissed Order VII Rule 11 CPC Application

The petitioner had argued that the plaint (Section 9 petition) deserved rejection under Order VII Rule 11, as the opposite parties had no cause of action. The Court rejected this argument:

“Averments in the plaint must be taken at face value. Clever drafting can’t substitute a real cause of action — but here, the cause is evident.” [Para 32]

Citing T. Arivandandam v. T.V. Satyapal and other landmark cases, the Court reaffirmed that Order VII Rule 11 is applicable only when one of the six strict grounds is satisfied, none of which applied here:

“This Court, upon a bare perusal of the averments made in the plaint, is not of the prima facie opinion that the same lacks in making out a cause of action...” [Para 32]

🏛️ Writ Petition Under Article 227 Maintainable But Court Declines Interference

The Court addressed the maintainability of a writ under Article 227, in light of the bar under Section 8 of the Commercial Courts Act, 2015, which prohibits challenge to interlocutory orders. It held:

“Section 8 cannot override the constitutional powers of the High Court under Article 227. The bar against revision/petition is not absolute—judicial review is part of the basic structure.” [Para 17–18]

However, exercising judicial restraint, the Court held that mere disagreement with an interlocutory order does not warrant interference:

“The exercise of writ jurisdiction... needs to be invoked by the limited nature of the said jurisdiction, lest the legislative object of proscribing revision would be defeated...” [Para 19]

Writ Petition Dismissed, Arbitration Proceedings to Continue

Finding no legal infirmity in the Commercial Court’s order, the High Court dismissed the writ petition and directed that the Section 9 arbitration petition be proceeded with. It further urged both parties to cooperate for early adjudication:

“This Court finds no merit in the present Writ Petition and does not deem it an appropriate case to exercise its jurisdiction...” [Para 36]

“The parties shall cooperate with prompt adjudication so as to enable early resolution of their dispute.” [Para 37]

Key Takeaways from the Judgment:

• A partnership deed clause permitting continuation after death overrides the default rule under Section 42(c) of the Partnership Act.

• Legal heirs can invoke arbitration even if not signatories to the deed, provided the deed includes them by reference.

• Failure to reconstitute the firm post-death is itself an arbitrable dispute under such deeds.

• An application under Order VII Rule 11 must strictly satisfy the statutory grounds; mere procedural defects or denial of documents is insufficient.

• Writ jurisdiction under Article 227 survives Section 8 of the Commercial Courts Act, but should be invoked only sparingly.

Date of Decision: July 18, 2025