Disputes over sale deeds between business partners can be settled through arbitration: Kerala HC

Kerala High Court

• Kerala HC: Partner sale deed disputes can be settled via arbitration
• Court clarifies registered sale deeds don't automatically exclude arbitration
• Sale deeds must reflect commercial reality and link to partnership agreements

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The Kerala High Court has reinforced the scope of arbitrability under the Arbitration and Conciliation Act, 1996, holding that disputes arising from sale deeds executed between business partners as part of a commercial arrangement can be resolved through arbitration rather than before civil courts.

“The Kerala High Court’s judgment in Lazar Chakkola And Ors. Vs. Sudarsanan Pillai.G And Ors. case can be seen as a victory for a pragmatic and modern view of arbitration in India. It reassures that arbitration in India is maturing and capable of handling complex partnership and property-related disputes that are essentially private in nature. In an economy where joint ventures and family businesses abound, such a development is undoubtedly welcome,” said Gautam Mohanty, Advocate, High Court, Bombay.

What is the case?

The dispute traces its origin to a partnership constituted in 1993 for running Hotel Alakananda, a hotel-cum-bar at Kollam. The claimant was the owner of the land on which the establishment stood and also held the FL-3 liquor licence in his own name. Facing financial difficulties, he entered into a partnership with the respondents to continue the business.

Over time, the claimant executed certain registered sale deeds in favour of some of the partners concerning immovable properties linked to the hotel business. His case was that these documents were never intended to operate as outright transfers of ownership. Instead, they were executed only as collateral arrangements to support the partnership operations and to enable repayment of business liabilities.

After nearly eighteen years of running the enterprise, disputes surfaced among the partners, leading to the invocation of the arbitration clause. The claimant alleged that the sale deeds had been obtained through coercion and fraud, without real consideration, and sought dissolution of the partnership along with a declaration that the registered instruments were void and did not divest him of title.

The arbitral tribunal accepted the claimant’s case, ordered dissolution of the partnership, and held that the sale deeds were invalid. This award was challenged by the respondents before the Commercial Court under Section 34 of the Arbitration and Conciliation Act, but the challenge was rejected. Aggrieved, the partners carried the matter in appeal to the High Court under Section 37.

Before the High Court, the appellants contended that the dispute was not amenable to arbitration as it concerned registered conveyances and rights in rem, arguing that only a civil court could set aside such documents under Section 31 of the Specific Relief Act, 1963. They also questioned the tribunal’s reasoning in holding the partnership tainted by fraud while still proceeding to dissolve it.

The claimant, on the other hand, maintained that the controversy was confined to the parties themselves and arose out of internal partnership arrangements. He asserted that the sale deeds were never meant to be genuine transfers but were merely security instruments, and therefore fell within the scope of arbitral adjudication.

“The ruling of the Kerala High Court clarifies that disputes arising from sale deeds executed between business partners are arbitrable when such deeds form part of a broader commercial or partnership arrangement, rather than constituting genuine transfers of title. The court emphasised that the mere existence of a registered sale deed or the involvement of immovable property does not automatically oust arbitration. What is decisive is the real nature of the transaction,” said Alay Razvi, Managing Partner, Accord Juris.

What does this mean for the future?

“The practical takeaway is this: sale deeds must reflect commercial reality, not just formal registration. Parties should ensure clarity of intent, consistency between documentation and conduct, and alignment with the broader transaction matrix. Courts are now prepared to look beyond labels and registration to determine whether a sale deed is truly a conveyance or merely part of a private business arrangement governed by arbitration,” Sanjna Dua, Principal Associate, Dua Associates.

What points should be kept in mind while carrying out sale deeds?

While executing sale deeds between partners, always link the deed to the master Partnership Deed, SHA or Settlement Agreement that contains the arbitration clause, because courts will check whether the transfer is commercial in nature. “For example, when a partner exits an LLP and transfers his flat or land as part of the settlement of capital accounts, the deed must clearly say it is pursuant to the business arrangement; otherwise, he can later claim it is a pure property dispute. This shows that a standalone sale deed is a serious legal risk, so every deed must expressly state that it is governed by the arbitration clause of the underlying agreement,” said Rahul Hingmire, Managing Partner, Vis Legis Law Practice.