Parties Can't Be Forced To Arbitration If Arbitration Clause Unambiguously Requires Discretion Of Parties: Madhya Pradesh High Court

The Madhya Pradesh High Court, in a recent ruling by Justice Subodh Abhyankar, clarified that when an arbitration agreement gives parties the discretion to opt for arbitration, all parties must mutually agree for the dispute to be referred to arbitration.\r

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The case involved the late Yeshwant Boolani, a partner in a partnership firm, whose son sought to become a partner after his father's death. The partnership deed contained an arbitration clause, but the High Court noted that the clause was optional and required mutual consent from all partners to proceed with arbitration.\r

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The court highlighted clauses 21 and 23 of the partnership deed, emphasizing that the induction of a legal heir as a partner was at the discretion of the existing partners. Despite arguments based on Section 40 of the Arbitration Act, which addresses the enforceability of arbitration agreements against the legal representatives of deceased parties, the court held that the arbitration clause could not be enforced without mutual consent.\r

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The High Court referred to previous judgments and concluded that since the arbitration clause clearly indicated arbitration was optional, parties could not be compelled into arbitration without mutual consent. Consequently, the court dismissed the application, granting the applicant the liberty to pursue other legal remedies.