Arbitration Agreement Enforceable Against Legal Representatives Of Deceased Party : Supreme Court

Introduction

Arbitration agreements act as a bridge between overburdening the judiciary with endless litigation and an amicable resolution between the parties which is cost efficient, faster and has a binding effect. That is the parties agree to resolve disputes amicably through a neutral third party making a binding decision instead of going into prolonged litigation. While it is well established that the Arbitration clause is enforceable against the signatory parties, their enforceability against the legal representatives of a deceased signatory has been a matter of legal debate. This issue was answered by the Supreme Court of India on 21^st February, 2025 in the case of Rahul Verma & Ors. V. Rampat Lal Verma & Ors., where it was held that an arbitration agreement does not cease to exist upon the death of a party and is enforceable by or against the legal representatives of the deceased party.

Background of the Case

The litigation arose after two out of three partners in a partnership firm, established on April 1, 1984, passed away on 24.12.2022 and 21.11.2023, respectively. This led to a dispute between the legal heirs for which a petition under section 8 of the Arbitration and Conciliation Act, 1996 was preferred. However, the civil court dismissed the petition by order dated 09.08.2024.

Aggrieved by the same an appeal was preferred to the high court, where, on 22.10.2024, it was held that clause no. 2 of the partnership deed makes it evident that the partnership deed is binding upon the heirs of the deceased partner. The Clause provides that the death or retirement of any partner shall not have the effect of dissolving the partnership which will continue between the other partners and one of the heirs or one of the representatives of the deceased partner if so agreed. Further, Clause 15 of the partnership deed contained an arbitration clause.

The present case arises from a special leave petition filed against the order passed by the Gauhati High Court, which quashed and set aside the order passed by the civil judge.

Issues

The two main questions which came for the consideration before the Supreme Court of India in this impugned case are:

• Whether the legal heirs of a deceased partner in a partnership firm, being non-signatories to the partnership deed and in the absence of their explicit consent, can still be bound by the arbitration agreement prescribed therein? and
• Whether the right to sue for the rendition of accounts survive to the legal heirs of the deceased partner, entitling them to invoke the arbitration clause in the partnership deed?

Courts Observations

The Supreme Court relied on the case of Ravi Prakash Goel v. Chandra Prakash Goel & Anr., reported in (2008) 13 SCC 667 which aligns with the facts of the present case. This Court in this case held that an arbitration agreement does not cease to exist on the death of any party and the arbitration agreement can be enforced by or against the legal representatives of the deceased. The Court emphasized on the definition of a ‘legal representative’ under Section 2(1)(g) of the Act of 1996 to hold that an arbitral agreement and the award is enforceable by or against the legal representatives of the deceased. Further, the Court also relied on Section 40 of the Act to hold that Arbitration agreement is not to be discharged by the death of a party.

The Court in the above case, while addressing the second issue, relying on provisions of Section 46 read with Section 48 of the Partnership Act and Section 40 of the Arbitration and Conciliation Act, 1996 held that while the right to sue for rendition of accounts of partnership firm survives on the legal representative of a deceased partner, he is also entitled to invoke the arbitration clause contained in the partnership deed.

Further, The Supreme Court in the impugned case relied on the Delhi High Court judgement in Jyoti Gupta v. Kewalsons & Ors, 2018 SCC OnLine Del 7942, the High Court of Delhi also held that an arbitration agreement does not stand discharged on the death of a partner and it can be enforced by the legal heirs of the deceased-partner. It categorically held that merely because the arbitration agreement refers to the disputes between ‘partners’, it cannot bar the legal heirs from seeking their remedies by virtue of the arbitration agreement.

Judgement 

The Supreme Court in the impugned case held that the term ‘Partners’ extends to and would include their legal heirs, representatives, assigns or legatees, etc. Person claiming under the rights of a deceased person are the representatives of the deceased party, and therefore, both the parties to the agreement and their legal heirs are entitled to enforce an arbitral award and are bound by it. In light of Section 40 of the Act of 1996 the existence of an arbitration agreement is not affected by the death of a party to the arbitration agreement. As a consequence, the right to sue for rendition of account also survives, ensuring that the legal representatives can assert or defend claims arising from the partnership agreement. And for these reasons High Court’s Judgement was upheld, and the special leave petition was dismissed.

Analysis

In the impugned judgement, the court deals with the enforceability of arbitration agreements against legal heirs of deceased partners, wherein the Supreme Court made it clear that an arbitration clause in a partnership deed is binding not only on the original parties but also their legal representatives, drawing its support from Section 40 of the Arbitration and Conciliation Act, 1996. This makes the arbitration agreement continue even after the death of a partner, thereby averting disputes from turning into lengthy litigation and prevents parties from adopting defences such as the heirs are not signatory to the agreement or extinguishment of agreement on the death of the party or the personal nature of the contract, that is the agreement were personal to the deceased partner and do not extend to their legal heirs.

The Impugned Judgement also established the right to sue for rendition of accounts survive even after death of a partner, under Sections 46 and 48 of Partnership Act. Relying upon the arbitration clause, legal heirs can approach arbitration for a dispute resolution without going for court proceedings. The ruling will have far-reaching commercial consequences to reinforce arbitration as a preferred conflict resolution mechanism. It ensures business continuity, maintains judicial efficiency and safeguards contractual obligations so that arbitration agreements are respected even in the event of a partner’s death. In rejecting the special leave petition, the Supreme Court affirmed the High Court’s decision, confirming that legal heirs inherit rights as well as obligations, including the arbitration clauses.

Conclusion

The Supreme Court’s decision in the present case is a landmark decision that enhances the enforceability of arbitration agreements in partnership disputes. It gives clarity on the legal position of representatives and heirs in arbitration proceedings, ensuring that partnership disputes are settled in an efficient manner and in terms of the agreed means of resolving disputes. In upholding the High Court’s decision, the Supreme Court has asserted the principle that legal representatives take not only the property and liabilities of a deceased partner but also their contractual obligations, such as the obligation to arbitrate disputes.

King Stubb & Kasiva,
Advocates & Attorneys

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