Enforceability of Arbitration Agreements Against Legal Representatives of a Deceased Party

Introduction

What happens to an arbitration agreement when one of the parties passes away? Does it vanish with them, or does it bind those who step into their legal shoes? This question, often overlooked but holds immense significance in contractual and partnership disputes. The Hon’ble Supreme Court of India recently weighed on this issue, reaffirming that death does not dissolve arbitration obligations. This article explores the evolving legal landscape surrounding arbitration agreements and their enforceability against legal representatives of a deceased party, shedding light on a crucial yet underexplored aspect of arbitration law.

Arbitration Beyond Life: Supreme Court Upholds Enforceability Against Legal Heirs

The Hon’ble Supreme Court in Rahul Verma & Ors. v. Rampat Lal Verma & Ors[1] ruled that an arbitration agreement remains valid even after the death of a party and can be enforced by or against the legal representatives of the deceased. The Court rejected a Special Leave Petition (SLP) challenging the Hon’ble Gauhati High Court’s decision, which had allowed an appeal under Section 37(1)(a)[2] of the Arbitration and Conciliation Act, 1996 (hereinafter ‘the Act’). The Hon’ble High Court had overturned the Commercial Court’s order that dismissed the Respondents’ petition under Section 8[3] of the Act. The Hon’ble Apex Court has reiterated that an arbitration agreement is enforceable against the legal representatives of a deceased partner of a partnership firm. The Hon’ble Supreme Court stated “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,” referring to the judgment of Ravi Prakash Goel v. Chandra Prakash Goel & Anr.[4].

A Bench comprising Justice JB Pardiwala and Justice R Mahadevan observed that the term ‘partners’ includes their legal heirs, representatives, assigns, or legatees[5]. Since individuals claiming rights through a deceased party are considered their representatives, both the original parties to the agreement and their legal heirs are bound by and entitled to enforce an arbitral award. Referring to Section 40[6] of the Act, the Hon’ble Apex Court affirmed that the arbitration agreement remains unaffected by a party’s death, ensuring that legal representatives retain the right to pursue or defend claims related to the partnership agreement, including the right to seek an account settlement.

The Act, has played a crucial role in shaping arbitration law in India. Section 40[7] of the Act deals with an important procedural and substantive aspect the effect of a party’s death on an arbitration agreement. This provision ensures that the arbitration agreement remains valid and enforceable even after the death of a party, reinforcing arbitration as a strong and reliable dispute resolution mechanism.

Section 40: Ensuring Arbitration Survives Beyond Parties

Section 40[8] explicitly states that unless the arbitration agreement specifies otherwise, the death of a party does not terminate the agreement. Instead, it remains enforceable by or against the deceased party’s legal representatives. The exact wordings of Section 40[9] are as follows:

“(1) 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 be enforceable by or against the legal representative of the deceased.
 (2) The mandate of an arbitrator shall not be terminated by the death of any party by whom he was appointed.
 (3) 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.”

This provision establishes a clear legal framework to ensure the continuity of arbitration agreements and proceedings despite the death of a party. By preserving the validity and enforceability of arbitration agreements, it prevents disruptions in the arbitration process and upholds the integrity of alternative dispute resolution.

Genesis of the Dispute: The Road to Arbitration

The dispute originated between a surviving partner of a partnership firm and the legal heirs of two deceased partners. While the original commercial suit was still pending, the Respondents filed an application under Section 8[10] of the Act before the Commercial Court in Dibrugarh[11]. They sought the dismissal of the suit and a referral of the matter to arbitration. However, the Learned Civil Judge dismissed their application.

Dissatisfied with this decision, the Respondents appealed to the Hon’ble Gauhati High Court. The Hon’ble High Court, upon reviewing the case, observed that Clause 2 of the partnership deed explicitly bounds the heirs of deceased partners to its terms. It further noted that Clause 15 of the deed outlined the conditions under which disputes could be referred to arbitration. Since the dispute in question related to the affairs of the partnership firm, particularly its dissolution, the Court held that Section 42(c) of the Partnership Act, 1932[12] did not prevent the matter from being referred to arbitration. Consequently, the legal heirs of the deceased partners were entitled to invoke the arbitration clause, and the sole surviving partner could also do so against them. Aggrieved by the Hon’ble High Court’s ruling, the Petitioner approached the Hon’ble Supreme Court.

Issues Considered by the Supreme Court

Based on the case facts and submissions, the Hon’ble Supreme Court framed two key issues for determination:

1. Whether the legal heirs of a deceased partner, who were not signatories to the partnership deed and had not explicitly consented to it, could still be bound by the arbitration agreement contained therein.
2. Whether the right to seek an account settlement (rendition of accounts) survived to the legal heirs of the deceased partner, enabling them to invoke the arbitration clause in the partnership deed.

Supreme Court’s Rationale: Interpreting Arbitration Beyond Death

The Hon’ble Supreme Court referred to its ruling in Ravi Prakash Goel v. Chandra Prakash Goel & Anr.[13], where it was established that an arbitration agreement does not cease to exist upon the death of a party. Instead, it remains enforceable by or against the legal representatives of the deceased. The Hon’ble Court of last resort cited Section 2(1)(g)[14] and Section 40[15] of the Act, which explicitly provide that the death of a party does not discharge an arbitration agreement. The Hon’ble Apex Court clarified that anyone who represents the estate of the deceased assumes the status of a legal person with enforceable rights and obligations under the arbitration agreement.

The Hon’ble Apex Court also emphasized that the legal representative of a deceased partner retains the right to sue for an account settlement of the partnership firm and is equally entitled to invoke the arbitration clause in the partnership deed.

Additionally, the Hon’ble Supreme Court referred to Jyoti Gupta v. Kewalsons & Ors[16]., where the Hon’ble Delhi High Court held that an arbitration agreement remains valid even after the death of a partner and can be enforced by their legal heirs. The Hon’ble Apex Court ruled that merely because an arbitration agreement refers to disputes among ‘partners’, it does not exclude the legal heirs of a deceased partner from enforcing the agreement, given the provisions of Section 40[17] of the Act.

Conclusion

In light of these precedents, the Hon’ble Supreme Court concluded that the term ‘partners’ extends to include their legal heirs, representatives, assigns, or legatees. Section 40[18] of the Act ensures that an arbitration agreement remains unaffected by the death of a party, thereby preserving the right to sue for an account settlement. This allows legal representatives to assert or defend claims arising from the partnership agreement.

As a result, the Hon’ble Apex Court upheld the Hon’ble High Court’s decision, ruling that the legal heirs in this case had rightfully stepped into the shoes of the deceased partners. Clause 15 of the partnership agreement was thus binding on both the petitioners and respondents, and the Hon’ble High Court had not erred in its judgment.

Authored By:
Varun S. Ahuja
Ahuja Law Offices
M: 9971673660

[1] 2025 SCC OnLine SC 578.
[2] Arbitration and Conciliation Act, 1996 (Act 26 of 1996), S. 37 (1)(a).
[3] Arbitration and Conciliation Act, 1996 (Act 26 of 1996), S. 8.
[4] (2008) 13 SCC 667.
[5] Rahul Verma & Ors. V. Rampal Lal Verma & Ors 2025 SCC OnLine SC 578.
[6] Arbitration and Conciliation Act, 1996 (Act 26 of 1996), S. 40.
[7] Ibid.
[8] Supra Note 6.
[9] Supra Note 6.
[10] Arbitration and Conciliation Act, 1996 (Act 26 of 1996), S. 8.
[11] Supra Note 5.
[12] The Indian Partnership Act, 1932 (Act 9 of 1932).
[13] (2008) 13 SCC 667.
[14] Arbitration and Conciliation Act, 1996 (Act 26 of 1996), S. 2 (1) (g).
[15] Supra Note 6.
[16] 2018 SCC OnLine Del 7942.
[17] Supra Note 6.
[18] Supra Note 6.