Closure Of Partnership Activities Till Dissolution Of Firm Cannot Be Granted As Interim Relief U/S 9 Of A&C Act: HP High Court

Facts

The present petition was filed under Section 9, ACA to restrain the Respondent from carrying out business operations in the name of M/s Vidhyasha Pharmaceuticals till the final adjudication of the arbitration proceedings including closure of production of production activities and freezing of the bank accounts of the partnership firm. The said partnership firm was constituted on 24.06.2014 between Sh. Parkash Chand Bansal, Nitin Gupta (Petitioner) and Arrpit Aggarwal (Respondent). Sh. Bansal retired from the partnership firm and the firm was reconstituted on 06.01.2015 between the remaining two partners who had 50% shares in the net profits and losses. The partnership firm was involved in the business of manufacturing pharmaceutical products, medicines, tools, dyes and also did service job work.

Irreconcilable differences cropped up between the two partners. On 26.05.2025, Petitioner issued notice of dissolution of the partnership to the Respondent invoking Section 43, Partnership Act. The partnership firm stood dissolved on the date of publication of the notice. It is the Petitioner's case that the Respondent has no right to carry on business of partnership firm from 15.06.2025 and hence the present petition was filed.

Contentions

The Counsel for the Petitioner submitted that on dissolution of the partnership firm, its business needed winding up. The Respondent is required to be restrained from carrying out the partnership business till the appointment of Arbitrator/ adjudication of dispute by the competent authority. All actions pursuant to partnership deed needed to be stopped. Production activity in furtherance of partnership business was also required to be halted.

The Counsel for the Petitioner cited various precedents where it has been observed by courts that once the firm is dissolved, no partner has a right to continue the business of the firm except for winding up and to complete the commitments prior to dissolution and not day to day business of the firm as it was prior to the dissolution.

The Counsel for the Respondent submitted that neither the Petitioner had established prima facie case in his favour concerning alleged dissolution of the Partnership firm nor balance of convenience exists in petitioner's favour. It was urged that irreparable loss and injury will be caused to the partnership firm & Respondent by the closure of the partnership business altogether as prayed by the Petitioner. More than hundred employees engaged by the partnership firm will be rendered jobless. 

Observations

The Court observed that the object of Section 9, ACA is to preserve the subject matter and secure arbitration. In the guise of praying interim relief under Section 9 petition, relief of nature destructive to the main subject matter could not be granted. Filing of an application by a party by virtue of its being a party to an arbitration agreement is for securing a relief which the court has power to grant before, during or after arbitral proceedings by virtue of Section 9, ACA.

Analysing the clauses of the Partnership Deed, the Court observed that no doubt Clause 10 of the Partnership deed labelled the firm to be 'at will' yet Clause 8 of the deed categorically restrained either partner from selling, assigning transferring or otherwise parting with his share or interest without written consent of the other partner.

The Court held that whether generalized 'at will' character of the partnership business under Clause 10 would yield to specific contractual bar in Clause 8 of the deed, was a question which required the detailed consideration of the arbitral tribunal and also whether the partnership deed conferred its indefinite duration but required mutual consent for exit. The Court observed that simply because Clause 10 of the partnership deed referred to the partnership as 'at will', this was not sufficient in the given facts to conclude at this stage that it was so and unilateral dissolution was permissible.

The Court reiterated the three-point test for interim relief i.e. prima facie case, balance of convenience and irreparable loss. The Court observed that in the present case only the first requirement that is of prima facie case stood satisfied. The Court highlighted that it had not been denied that the complete shutdown of the partnership business would affect 120+ employees. It had also not been ruled out that closure of partnership business and stoppage of the manufacturing process would adversely impact the 1100+ WHO-GMP certifications, drug licenses and approvals. Freezing of operational accounts of the firm altogether would also block legitimate transactions including payment of salaries, vendor payments, clearing of statutory dues, suspension of medicines manufacturing, permanent loss of clientele and goodwill etc.

The Court concluded that the grant of the interim measure prayed in this petition would virtually paralyse day-to-day functioning of the firm. Thus, the interim relief prayed for by the Petitioner did not amount to preservation or protection of the subject matter of the arbitration. In fact grant of such relied could eventually lead to destruction of the subject matter of arbitration i.e. the partnership firm. Accordingly, the Court dismissed the present petition allowing the Petitioner to seek appropriate relief from the Arbitrator.

Case Title – Nitin Gupta v Arrpit Aggarwal

Case No. – Arb. Case No. 116 of 2025

Appearance-

For Petitioner – Mr. Mohit Chadha and Mr. Shubham Sood, Advocates

For Respondent – Mr. Desh Raj Thakur and Mr. Ravneet Kumar

Date – 21.08.2025