Source: Supreme Court 

Why in News? 

Recently, the bench of Justice JB Pardiwala and Justice R Mahadevan have held that arbitral agreements and awards are enforceable by or against legal representatives. 

• The Supreme Court held this in the matter of Rahul Verma and others v. Rampat Lal Verma and others (2025). 

What was the Background of Rahul Verma and others v. Rampat Lal Verma and others Case? 

• The case involves a dispute between legal heirs of deceased partners and a surviving partner of a partnership firm. 
• The partnership firm originally consisted of three partners. Two of the partners passed away. 
• The partnership deed contained an arbitration clause (Clause 15) which stated that any disputes regarding partnership affairs, dissolution, or discontinuance would be referred to arbitration. 
• The partnership deed also contained a specific clause (Clause 2) addressing the continuation of the partnership after a partner's death, stating that the partnership would continue between the surviving partners and potentially one heir of the deceased partner if agreed upon. 
• The respondents (original defendants) filed a petition under Section 8 of the Arbitration and Conciliation Act, 1996 (A & C Act) in the Commercial Court at Dibrugarh, seeking dismissal of the commercial suit and requesting reference to arbitration. 
• The petition was based on the arbitration clause contained in the partnership deed. 
• The Civil Judge (Senior Division) at Dibrugarh dismissed this petition. 
• The respondents then filed an appeal under Section 37(1)(a) of A & C Act before the Gauhati High Court. 
  • The High Court concluded that legal heirs of the deceased partner are entitled to invoke the arbitration clause, and the surviving partner can also invoke the arbitration clause against the legal heirs. 
• Special Leave Petition has been filed before the Supreme Court by the petitioner. 
• The dispute centers on whether the legal heirs of deceased partners can be bound by the arbitration agreement in the partnership deed despite not being signatories, and whether they can invoke the arbitration clause for the rendition of accounts. 

What were the Court’s Observations? 

• The Supreme Court made the following observations: 
  • The Supreme Court dismissed the special leave petition, upholding the High Court's judgment. 
  • The Court identified two major questions:  
    • Whether legal heirs of a deceased partner, being non-signatories to the partnership deed, can be bound by the arbitration agreement? 
    • Whether the right to sue for rendition of accounts survives to the legal heirs, entitling them to invoke the arbitration clause? 
  • The Court cited the case of Ravi Prakash Goel v. Chandra Prakash Goel & Anr. (2008), stating it "squarely covers the facts of the present case." 
  • The Court observed that an arbitration agreement does not cease to exist upon the death of any party and can be enforced by or against the legal representatives of the deceased. 
  • It emphasized the definition of 'legal representative' under Section 2(1)(g) of A & C Act noting that arbitral agreements and awards are enforceable by or against legal representatives. 
  • The Court referenced Section 40 of A & C Act, affirming that death does not discharge an arbitration agreement. 
  • It concluded that the term 'partners' extends to and includes legal heirs, representatives, assigns, or legatees. 
  • The Court held that since the legal heirs had "stepped into the shoes of the deceased," clause 15 of the partnership agreement binds both the petitioners and respondents. 

Who are the Legal Representatives as per the A & C Act? 

• Under Section 2 (1) (g) the legal representatives are defined as: 
  • A person who in law represents the estate of a deceased person, and includes any person who intermeddles with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting. 

What is the Effect of Death on Arbitration Agreement? 

• As per section 40 the A & C Act, an arbitration agreement not to be discharged by death of party thereto: 
  • Clause (1) states that an arbitration agreement shall not be discharged by the death of any party thereto either as respects the deceased or as respects any other party, but shall in such event been forceable by or against the legal representative of the deceased.  
  • Clause (2) states that the mandate of an arbitrator shall not be terminated by the death of any party by whom he was appointed.  
  • Clause (3) states that nothing in this section shall affect the operation of any law by virtue of which any right of action is extinguished by the death of a person. 

Landmark Judgement 

• Ravi Prakash Goel v. Chandra Prakash Goel & Anr. (2008) 
  • The Supreme Court in this case established the important principle that arbitration clauses in partnership agreements survive the death of partners and can be invoked by or against their legal representatives.