Madhya Pradesh High Court
Ratan Lalchandani vs Gopaldas on 7 April, 2026
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AC No.11 of 2023
IN THE HIGH COURT OF MADHYA PRADESH
AT JABALPUR
BEFORE
HON'BLE SHRI JUSTICE VIVEK JAIN
ARBITRATION CASE No. 11 of 2023
RATAN LALCHANDANI
Versus
GOPALDAS
Appearance:
Shri Siddharth Gulatee - Senior Advocate with Smt. Tulika Gulatee
and Subhankar Basnet - Advocate for petitioner.
Shri R.K. Sanghi - Senior Advocate with Shri Tanmay Shukla -
Advocate for respondent.
ORDER
(Reserved on 02. 02. 2026)
(Pronounced on 07. 04.2026)
The present application under Section 11(6) of Arbitration and
Conciliation Act,1996 (for short ‘Act of 1996’) has been filed for
appointment of arbitrator for adjudication of disputes arising between the
parties from the partnership deed dated 03.07.2013.
2. It is the case of the petitioner that a partnership deed was executed
between the petitioner and the respondent on 03.07.2013 as per which the
parties had agreed to carry on the business of running a marriage garden,
hotel, restaurant and other allied and connected services in the land owned
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by the respondent at Indore, area about 1.62 hectare and at that time
assessed to be having value of Rs.3.10 crores. The petitioner was to invest
an amount of Rs.1.55 crores in the land for development and starting of the
business over a period of time and when the business was to start to run
then the petitioner and the respondents were to receive share in profit at the
rate of 50% each.
3. The respondent served an intimation dated 21.01.2020 to dissolve the
partnership firm which was replied by the petitioner on 18.07.2020 and
then the petitioner sent a notice dated 01.12.2022 to appoint arbitrator for
settlement of account but the respondent replied mentioning falsity of claim
of the petitioner on merits, so also that conciliation proceedings are yet to
be carried out and proposed the name of the conciliator, while disagreeing
with the name of the proposed arbitrator proposed by the petitioner.
4. After receipt of the said reply dated 13.12.2022, the present petition
has been filed for appointment of arbitrator before this Court on 30.01.2023.
It is not in dispute that separate proceedings under Section 9 of Act of 1996
are pending and at present appeal arising out of the said proceedings is
pending before this Court separately.
5. The learned counsel for the petitioner has vehemently argued that
since this is a petition under Section 11(6) of Act of 1996, therefore, as per
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the newly inserted Section 11(6)A, the scope of jurisdiction of the High
Court is only confined to examination of existence of an arbitration
agreement. It is vehemently argued by the learned counsel for the petitioner
that there was an arbitration agreement between the parties and the
partnership deed which is placed on record duly contains an arbitration
clause in Para-18 of the deed as per which the disputes between the parties
are to be adjudicated by way of arbitration. Therefore, it is argued that once
there is a dispute between the parties because on one hand the respondent is
treating that there is dissolution of partnership firm and projecting that he is
not required to pay anything to the petitioner towards accounts of the
partnership firm, therefore there is a dispute arising between the parties
because there are claims of the petitioner for which he is seeking accounts
of the partnership firm. It is therefore contended that it is a fit case where
arbitrator should be appointed by this Court.
6. It is further argued that though the partnership deed is registered only
before Registrar of Registration and there is as such no registration of firm
with the Registrar of Firms, which is required to be made as per Indian
Partnership Act, but the non-maintainability of suit in terms of Section 69
of Partnership Act, 1932 if the firm is unregistered firm, would not be an
impediment in the arbitration proceedings because Section 69 does not bar
arbitration proceedings and bars suit or such other proceedings and it has
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been held by the Supreme Court in the case of Umesh Goel v. H.P. Coop.
Group Housing Society Ltd., (2016) 11 SCC 313 that arbitral proceedings
do not come under the expression ‘other proceedings’ in section 69(3) of
Partnership Act. Therefore, the ban imposed under Section 69 would have
no application to arbitral proceedings as well as to arbitral awards.
Therefore, it is argued that irrespective of the position that the firm is
unregistered firm the arbitration proceedings can always be resorted as
there is an arbitration clause in the partnership deed which amounts to
arbitration agreement between the parties.
7. The learned counsel for the petitioner has further argued that though
various objections as to limitation etc. have been taken by the respondent in
his reply but the petitioner is entitled to get the benefit of extension of
limitation of COVID-19 period as ordered by the Hon’ble Supreme Court
and upon exclusion of the said period, the claim is not barred by limitation.
It is argued that even otherwise the question that whether the claim is
barred by limitation or not, being a mixed question of law and fact, it
should be left to the arbitrator to be adjudicated and at the stage of Section
11, the referral Court is not required to carry out any deeper scrutiny and
should restrict itself in terms of section 11(6)A to inquire as to whether
there is existence of an arbitration agreement and therefore, it is a fit case
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where arbitrator needs to be appointed by this Court as the disputes that
have arisen can only be adjudicated by an arbitrator.
8. Per contra, the learned counsel for the respondent has vehemently
argued that it is a case of blackmailing of respondent in as much as there
was a deed of partnership wherein the respondent brought in 1.62 hectare
land in the firm for the purpose of establishment of marriage garden, hotel,
restaurant and other allied activities. In the land in question, a marriage
garden and hotel, restaurant etc. were to be constructed by the funds of the
petitioner and he was expected to invest an amount of Rs.1.55 crores and
the value of the land was assessed to be Rs. 3.10 crores, that was the capital
investment of the respondent. However, the petitioner did not invest a
single penny and no development of hotel or restaurant or marriage garden
took place and the land lay in the same situation as it was on the date of
execution of partnership deed and not a single penny was invested by the
petitioner. Therefore, as the firm never took off and the business of the firm
never started and even no proceedings took place for start of business of the
firm, therefore it is a case where there is no existence of partnership and by
relying on various judgments, it is argued that there is no existence of
partnership and once there is no existence of partnership then it is a clear
case where there is no existence of any arbitration agreement because if the
existence of partnership itself is not there then the existence of the
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partnership agreement also does not create any partnership and once no
partnership is created, then there is no existence of any arbitration
agreement.
9. It is argued that since for a long period of time the petitioner did
not make any investment in the land, then the respondent has given notice
for dissolution of the firm and has even sold the land to a third party but the
intention of the petitioner is only to grab the land whereby without
investing a single penny in the project, he now wants half share of the land
without investing anything in the project. It was nothing but a conspiracy of
the petitioner in executing the agreement in the manner it has been done
then the petitioner did not carry out his obligations under the agreement,
did not make any investment, did not start the business, but now wants
share in the land and therefore, it is a classic case of the manner in which
the land mafia is operating in usurping and grabbing the lands of innocent
persons.
10. In rejoinder submissions, the counsel for the petitioner had argued
that the project could not take off on account of lapses on part of the
respondent and not on part of lapses of the petitioner because the land was
under a Town Development Scheme of Indore Development Authority and
the acquisition proceedings were under challenge before the Commissioner,
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Indore Division, Indore and unless the land came out of the acquisition
proceedings, no investment could be made by the petitioner. This was
replied by the counsel for the respondent by stating that even if the land
was under acquisition then nothing stopped the petitioner from setting up
the project and the information was given in the partnership deed about
pending dispute, but there was no clause in the partnership deed that the
project will take off only when the dispute as per acquisition gets over. It
was a risk taken by the petitioner, otherwise, there was no reason for the
respondent to bring in twice the cost of land, as compared to the investment
to be made by the petitioner. It is further stated that the petitioner is a
litigious person and as many as 40 cases have been instituted by him before
different Courts till date and it is his business to grab the lands by some
manner or the other.
11. Heard learned counsel for the parties at length and perused the record.
12. In the present case, the parties entering into agreement is not in
dispute. It is also not in dispute that the respondent had to bring his land
into the firm which was 1.62 hectares situated at Indore and thereupon a
hotel, marriage garden and restaurant was to be constructed/set up by the
petitioner upon cost of Rs.1.55 crores and then from the profits of the
business, both the parties had to share 50% each.
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13. So far as the question that the firm in question is not a registered
partnership firm and applicability of Section 69 of Act of 1932 is concerned,
Section 69 of Indian Partnership Act, 1932 (for short ‘Act of 1932’) is as
under:-
“69. Effect of non-registration.–(1) No suit to enforce a right
arising from a contract or conferred by this Act shall be institutes in
any Court by or on behalf of any person suing as a partner in a firm
against the firm or any person alleged to be or to have been a
partner in the firm unless the firm is registered and the person suing
is or has been shown in the Register of Firms as a partner in the firm.
(2) No suit to enforce a tight arising from a contract shall be
instituted in any Court by or on behalf of a firm against any third
party unless the firm is registered and the persons suing are or have
been shown in the Register of Firms as partners in the firm.
(3) The provisions of sub-sections (1) and (2) shall apply also to a
claim of set-off or other proceeding to enforce a right arising from a
contract, but shall not affect–
(a) the enforcement of any right to sue for the dissolution of
a firm or for accounts of a dissolved firm, or a ay right or
power to realise the property of a dissolved firm, or
(b) the powers of an official assignee, receiver or Court
under the Presidency-towns Insolvency Act, 1909 (2 of 1909),
or the Provincial Insolvency Act, 1920 (5 of 1920), to realise
the property of an insolvent partner.
(4) This section shall not apply–
(a) to firms or to partners in firms which have no place of
business in 1 [the territories to which this Act extends], or
whose places of business in 2 [the said territories] are
situated in areas to which, by notification under 3 [section
56], this Chapter does not apply, or
(b) to any suit or claim of set-off not exceeding one hundred
rupees in value which, in the Presidency-towns, is not of a
kind specified in section 19 of the Presidency Small Cause
Courts Act, 1882 (15 of 1882), or, outside the Presidency-
towns, is not of a kind specified in the Second Schedule to the
Provincial Small Cause Courts Act, 1887 (9 of 1887), or to
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any proceeding in execution or other proceeding incidental
to or arising from any such suit or claim.
14. Initially a view had been taken by the Hon’ble Supreme Court in
Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd., 1964 SCC
OnLine SC 50 : AIR 1964 SC 1882 that even arbitration is not
maintainable in respect of disputes between partners of unregistered
partnership firm in view of Section 69 aforesaid.
15. However, subsequently it has been held by the Hon’ble Supreme
Court in Umesh Goel (supra) that arbitral proceedings do not come under
the expression ‘other proceedings’ as per Section 69(3) of Act of 1932 and
therefore the bar under Section 69 of Act of 1932 does not extend to
arbitration proceedings. The Hon’ble Supreme Court considered in detail
the scheme of Act of 1996, the definition of ‘Court’ under the Act of 1996
and then held that the arbitral proceedings are not affected by the
provisions of Section 69 when the firm is unregistered.
16. Therefore, this argument of the respondent is discarded that in
unregistered partnership firm the arbitration proceedings are not
maintainable, and no arbitrator can be appointed by this Court only for the
reason of the firm not being registered.
17. Now the scope of application under Section 11(6) is to be considered
in view of the amended provisions and insertion of Section 11(6)A. Though
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the amendment seriously curtails the jurisdiction of the referral Court, but it
has been held by the Hon’ble Supreme Court in DLF Home Developers
Ltd. v. Rajapura Homes (P) Ltd., (2021) 16 SCC 743 that while making
appointment of arbitrator, the duty of referral Court is not to act
mechanically but some application of mind should be made to the core
preliminary issues within framework of Section 11(6)A. Such a view is not
intended to usurp jurisdiction of the arbitral Tribunal but it will only
streamline the arbitration process. It was held that even if arbitration
agreement exists, it will not prevent the Court to decline a prayer for
reference to arbitrator if the dispute does not correlate to the agreement.
The following has been held therein :-
“21. The jurisdiction of this Court under Section 11 is primarily
to find out whether there exists a written agreement between the
parties for resolution of disputes through arbitration and whether
the aggrieved party has made out a prima facie arbitrable case. The
limited jurisdiction, however, does not denude this Court of its
judicial function to look beyond the bare existence of an arbitration
clause to cut the deadwood. A three-Judge Bench in Vidya
Drolia [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1,
paras 236, 237, 244.3, 244.4, 244.5, 244.5.1-244.5.3 : (2021) 1 SCC
(Civ) 549] , has eloquently clarified that this Court, with a view to
prevent wastage of public and private resources, may conduct
“prima facie review” at the stage of reference to weed out any
frivolous or vexatious claims.
22. In this context, the Court, speaking through Sanjiv Khanna, J.
held that : (Vidya Drolia case [Vidya Drolia v. Durga Trading
Corpn., (2021) 2 SCC 1, paras 236, 237, 244.3, 244.4, 244.5,
244.5.1-244.5.3 : (2021) 1 SCC (Civ) 549] , SCC p. 121, para 154)
“154. … 154.2. Scope of judicial review and jurisdiction of the
court under Sections 8 and 11 of the Arbitration Act is identical but
extremely limited and restricted.
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154.3. The general rule and principle, in view of the legislative
mandate clear from Act 3 of 2016 and Act 33 of 2019, and the
principle of severability and competence-competence, is that the
Arbitral Tribunal is the preferred first authority to determine and
decide all questions of non-arbitrability. The court has been
conferred power of “second look” on aspects of non-arbitrability
post the award in terms of sub-clauses (i), (ii) or (iv) of Section
34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act.
154.4. Rarely as a demurrer the court may interfere at Section 8
or 11 stage when it is manifestly and ex facie certain that the
arbitration agreement is non-existent, invalid or the disputes are
non-arbitrable, though the nature and facet of non-arbitrability
would, to some extent, determine the level and nature of judicial
scrutiny. The restricted and limited review is to check and protect
parties from being forced to arbitrate when the matter is
demonstrably “non-arbitrable” and to cut off the deadwood. The
court by default would refer the matter when contentions relating to
non-arbitrability are plainly arguable; when consideration in
summary proceedings would be insufficient and inconclusive; when
facts are contested; when the party opposing arbitration adopts
delaying tactics or impairs conduct of arbitration proceedings. This
is not the stage for the court to enter into a mini trial or elaborate
review so as to usurp the jurisdiction of the Arbitral Tribunal but to
affirm and uphold integrity and efficacy of arbitration as an
alternative dispute resolution mechanism.”
23. N.V. Ramana, J. (as his Lordship then was) in his
supplementary opinion further crystallised the position as follows :
(Vidya Drolia case [Vidya Drolia v. Durga Trading Corpn., (2021)
2 SCC 1, paras 236, 237, 244.3, 244.4, 244.5, 244.5.1-244.5.3 :
(2021) 1 SCC (Civ) 549] , SCC p. 162, para 244)
“244. Before we part, the conclusions reached, with respect to
Question 1, are:
244.1. Sections 8 and 11 of the Act have the same ambit with
respect to judicial interference.
244.2. Usually, subject-matter arbitrability cannot be decided at
the stage of Section 8 or 11 of the Act, unless it is a clear case of
deadwood.
244.3. The court, under Sections 8 and 11, has to refer a matter
to arbitration or to appoint an arbitrator, as the case may be, unless
a party has established a prima facie (summary findings) case of
non-existence of valid arbitration agreement, by summarily
portraying a strong case that he is entitled to such a finding.
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244.4. The court should refer a matter if the validity of the
arbitration agreement cannot be determined on a prima facie basis,
as laid down above i.e. “when in doubt, do refer”.
244.5. The scope of the court to examine the prima facie validity
of an arbitration agreement includes only:
244.5.1. Whether the arbitration agreement was in writing? Or
244.5.3. Whether the core contractual ingredients qua the
arbitration agreement were fulfilled?
244.5.4. On rare occasions, whether the subject-matter of
dispute is arbitrable?”
(emphasis supplied)
24. To say it differently, this Court or a High Court, as the case
may be, are not expected to act mechanically merely to deliver a
purported dispute raised by an applicant at the doors of the chosen
arbitrator. On the contrary, the Court(s) are obliged to apply their
mind to the core preliminary issues, albeit, within the framework of
Section 11(6-A) of the Act. Such a review, as already clarified by
this Court, is not intended to usurp the jurisdiction of the Arbitral
Tribunal but is aimed at streamlining the process of arbitration.
Therefore, even when an arbitration agreement exists, it would not
prevent the Court to decline a prayer for reference if the dispute in
question does not correlate to the said agreement.”
18. In the present case, it was argued by learned counsel for the
respondent that once the business of the firm never started and this is an
admitted position that the business of the firm never started, therefore, there
is no existence of any partnership agreement because the partnership
business never took off. It is argued that in such circumstances, there would
be no partnership and once there is no partnership then there is no question
of any arbitration clause or any arbitration. It was argued that the petitioner
only wants a share out of the land without investing a single rupee in the
project. It is not the purpose of partnership agreement.
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19. The dispute that is sought to be resolved in the present case, is share
of the petitioner in the property, whereas the agreement was for running
business in the property. The dispute in question, therefore, has no co-
relation to the agreement. Paragraphs 10 and 11 of the notice for arbitration
make the dispute clear, that it is for share in the immovable property. The
relevant paragraphs of the said notice are as under :-
“10. That, as per Clause 17 of the deed, it is agreed that on dissolution
of the said firm for any reason whatsoever no account of the goodwill
of the firm be taken and none of the partners including the estate of the
deceased partner shall be entitled to receive any share in the goodwill
of the firm, if any on dissolution. It is also agreed that on dissolution
account shall be prepared and settled between you the noticee and my
client in accordance with the realized value of the assets and the
liabilities of the partnership firm so dissolved. It is also agreed to by
both the parties to the partnership deed dated 03.07.2013 in clause no.
17 that if any immovable property/stock remains in the firm, it shall
be distributed equally between the partners. It is specifically agreed to
by and between both the parties that in case of dissolution, a
dissolution account shall be prepared and settled between both the
parties, but you the noticee have failed to prepare such a dissolution
account and have dissolved the said firm by your letter dated
21.01.2020. My client replied to your dissolution notice through reply
dated 18.07.2020. Moreover, you the noticee have failed to distribute
the only immovable property, the Said Land of the firm between both
the partners, therefore, the attempt made by you the notice is illegal
and in violation of clause 17 of the Deed.
11. That, you the noticee acted in violation of Section 46 of
Partnership Act, 1932 by not distributing the surplus/assets of the
firm between the partners rather you dishonestly tried to sell and
dispose off the said Land of the firm which is a deliberate violation of
Section 46 of the Partnership Act. My client has recently come to
know that you the noticee have entered into a development agreement
or sale agreement in relation to the said land of the firm M/s. The
Touch, with some other party without my client’s knowledge and
consent.”
(Emphasis supplied)
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20. A similar issue was considered initially by the Division Bench of
Oudh High Court in the case of R. R. Sarna versus J. Reuben, 1946 (16)
Company Cases 64. The Division Bench of Oudh High Court held that
there are three elements to be present before any relation can be termed as
partnership to have come into existence and the three conditions are – (1)
there is agreement between some number of persons, (2) the agreement
must be to share the profits of business and (3) the business must be carried
on by all or any acting for all. It has been held that all these elements must
be present before a number of persons can be called partners. The
agreement must be to carry on business by way of present partnership and
an agreement to carry on business from a future date will not result in
partnership till that date arrives, unless the parties choose to commence
business before that date. What is essential is actual existence of a business
carried on by partners and when the business does not exist then the
partnership also does not exist. The Oudh High Court held as under:-
“All these elements must be present before a number of persons
can be called partners. As remarked by Desai in his Law of
Partnership, page 15, the agreement must be to carry on business by
way of present partnership. An agreement to carry on business from
a future date will not result in partnership until that date arrives,
unless the parties choose to commence business before that date.
What is essential to constitute partnership is the actual existence of a
business carried on by partners. Therefore, so long as the business,
whereof the profits the partners agree to share does not exist, there
can be no partnership. It may not always be easy to determinate at
what stage a business comes into existence but that is a question of
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as the business does not come into existence or something done
which may be taken as the commencement of the business, there can
be no partnership. As observed by Lindley in his Law of Partnership
(Edn. 10), p. 19:
“Persons who are working together to form a company, although
they may intend to become members of the company after its
formation, are not partners if this be the only relation between them;
they are, it is true, engaged in a common object, and that object is
ultimately to acquire profit; but their immediate object is the
formation of a company, and even if the company is not to be
incorporated they are only in the position of persons who intend to
become partners after the company is formed.”
21. The Oudh High Court also held that there is a difference between a
contract of partnership and an agreement to enter into contract. It was
further considered that the difference between a contract of partnership and
an agreement to enter into contract cannot be forgotten.
22. This position was further considered by Division Bench of Madhya
Bharat High Court, which is the precursor of this High Court, in Sitaram
Kalani Vs. Manmal Gattani, 1954 SCC OnLine MP 136. It was
considered by the Division Bench that what would be the meaning of the
expression ‘carrying on business’ for the purpose of Section 4 of Act of
1932. It has been held therein that as soon as the partnership starts its
commercial life having its own capital its assets and liabilities, its own
employees and its own credit in the market in short as soon as it becomes
business entity it would be regarded as carrying on business. The Division
Bench held as under:-
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“19. There is no doubt that it is the carrying on of a business, not an
agreement to carry it on, which is the test of partnership. In the
present case, the business was actually started as is already seen
above. Mr. Chaphekar for the respondent, however, advanced a
rather ingenious argument that till brass utensils were actually
manufactured, it could not be said that “business was carried on”
within the meaning of Section 4 of the Indian Partnership Act.
20. In my opinion this contention is without force as each and every
step taken for the erection of the factory, which was to manufacture
utensils, would be considered within the purview of “carrying on
business”. This term has been used in the Indian Partnership Act in
a broad and general sense. It may be observed that as soon as a
partnership starts its commercial life having its own capital, its
own assets and liabilities, its own employees and its own credit in
the market in short as soon as it becomes business entity it would
be regarded as “carrying on business” within the meaning of
Section 4 of the Indian Partnership Act.”
(Emphasis supplied)
23. In the present case since no investment has been made by the
petitioner towards starting of the business, that is setting up of marriage
garden, hotel and restaurant it cannot be termed that there was any
partnership in existence. It might be possible that some expenses might
have been incurred in correspondences, travel, liaison, etc. However, in
absence of starting the business or even setting up of the establishments
which were required to be set up or even in absence of laying down a single
brick for execution of the project for which the partnership had come into
existence, it is clear that the partnership in question ceases to be contract of
partnership and is only an agreement to enter into contract of partnership.
There had been no commercial life of the entity, no goodwill/credit in the
market was ever created.
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24. Even if the argument of learned counsel for the petitioner is
accepted that in absence of the land being taken off the acquisition/Town
Development Scheme of Indore Development Authority, it did not make
any development. It only bolsters the argument of counsel for the
respondent that the contract is only to enter into a partnership in future but
not a partnership agreement.
25. Therefore, the agreement in question not being a partnership
agreement, and no partnership having ever come into existence, therefore,
in the opinion of this Court no arbitration agreement can be inferred so as
to appoint arbitrator for rendition of accounts, as is being sought by the
petitioner.
26. Apart from above, the dispute that is sought to be resolved in the
present case, is share of the petitioner in the property, whereas the
agreement was for running business in the property. The dispute in question,
therefore, has no co-relation to the agreement.
27. Therefore, no case is made out for appointment of any arbitrator. The
petition fails and is dismissed.
(VIVEK JAIN)
nks JUDGE
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