Delhi High Court nullifies acrimonious removal of Saraf from L&L Partners

Delhi High Court nullifies acrimonious removal of Saraf from L&L Partners

Justice V Kameswar Rao it illegal and violation of the deed and reinstates Saraf as partner in the law firm till conclusion of the arbitration proceedings

Uneasy times lie ahead at the downtown Barakhamba Road (New Delhi) office the legal firm L&L Partners until completion of arbitration with the Delhi High Court on staying termination of senior partner Mohit Saraf as a partner in the firm.

Justice V Kameswar Rao announced his verdict on the high-profile dispute on 19 January 2021 in the Mohit Saraf vs. Rajiv Luthra case. Justice Rao had reserved his verdict in the case after completion of hearing on 9 December 2020.

"Prima facie the termination of the petitioner (Mohit Saraf) from partnership by the respondent (Rajiv Luthra) in terms of email dated October 13 22020 being in violation of the Deed and the Partnership Act, keeping in view the mandate of Section 12 of the Partnership Act, where a partner has the right to take part in the conduct of the business and also keeping away the petitioner from partnership business shall be his prejudice, if he finally succeeds in the prospective arbitration proceedings. I direct that there shall be a stay of the operation of the email dated October 13, 2020 issued by the respondent terminating the petitioner from the partnership till the conclusion of the prospective arbitration proceedings," the judgement read.

"I agree with the submission of learned Counsels for the petitioner that partnership in the firm stand on equal footing. One partner acts as an agent of the other(s). Together they constitute a firm. The partnership par se is not distinct legal entity," the judgement further said.

The Court had earlier appointed Senior Advocate Sriram Panchuas the Mediator after suggesting that the two parties resolve their dispute through mediation. However, the mediation talks failed and the logjam continued, leading to the court hearing detailed arguments. While the petitioner was represented by Senior Advocates Parag Tripathi and Arvind Nigam, Senior Advocates Abhishek Manu Singhvi, Neeraj Kishan Kaul and Amarjit Singh Chandhiok argued the case on behalf of the respondent.

The petitioner had argued before the Court that theirs was not a "master-servant" relationship and that his termination as a partner was illegal. Unless the firm was dissolved, he would continue to be a partner.

The respondent, on the other hand, took a stand that their partnership was an "unequal marriage" in which he retained special rights, including the right to oust the petitioner from the firm.

"It cannot be construed that 'termination' under Clause 7A would mean the grant of power on respondent to terminate the petitioner from partnership which has come into existence on the execution of the Deed by both the petitioner and the respondent," Justice Rao said. He concluded that the only purpose of the word "termination" in Clause 7A was for termination of equal partners who would be inducted by the respondent Rajiv Luthra from his equity share, and does not contemplate termination of petitioner from the firm.

"When the later part of Clause 7A contemplates approval of the respondent/RKL and petitioner/MS in the decision-making process, then earlier part of Clause 7A cannot be construed to mean the power of the respondent to terminate petitioner. I also note, as per Clause 10B, power vests with both the petitioner and the respondent to take decisions with regard to amalgamation, merger, collaboration and buy-outs of the firm by third parties. This clause appears to be at variance with the initial limb of Clause 7A," the Court said.

"The plea of the Counsels for the respondents that even if there is no explicit power, there is an implied power to terminate the partnership of the petitioner is also not appealing. Firstly, the statue i.e. the Partnership Act does not contemplate termination of a partner. Such a provision can neither expressly nor impliedly be read in the statue nor in the Deed. What is contemplated under the Partnership Act is expulsion of a partner under Section 33, but in good faith of power stipulated in the partnership deed. No such power of expulsion is also stipulated," Justice Rao further noted in his judgement.

Saraf had moved the High Court soon after he was removed by Luthra as a partner of the L&L Partners under Section 9 of the Arbitration & Conciliation Act. Saraf's appealed to the court restoration of his last uncontested status at the firm while his dispute with Luthra is referred to arbitration.

The two partners had a nasty exchange on 24 September 2020 over a video conference over the dilution of the firm's equity. Subsequently, Saraf wrote to the corporate partners stating that he had accepted Luthra's earlier offer to retire and withdraw from the firm and take a golden handshake.

Luthra in response denied that he had any plans of retiring from the firm that he had built and terminated Saraf as a partner due to his "clumsy strategy" on equity dilution. Luthra also accused Saraf of conduct "unbecoming of a lawyer" over leaking of confidential information of the firm and sharing private WhatsApp communication with third parties.

Prima facie, the Delhi High Court held that Saraf's termination as a partner in L&L Partners was illegal and in violation of the deed. In absence of Luthra's power to remove Safar from his position in the firm, Saraf must be reinstated.