A Single Judge Bench of Justice V Kameswar Rao of Delhi High Court has stayed the termination of L&L Partners Senior Partner Mohit Saraf from the Luthra partnership till the arbitration concludes with Rajiv Luthra.
The Court held,
“I agree with the submission of learned Counsels for the petitioner that partners in the firm stand on equal footing. One partner acts as an agent of the other(s). Together they constitute a firm. The partnership per se is not a distinct legal entity.”
The judgment pronounced for Luthra partnership read,
“In view of my above discussion, prima facie the termination of the petitioner from partnership by the respondent in terms of email dated October 13, 2020 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 the partnership business shall be to 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 court was of the view that the only purpose for the word “termination” in clause 7A of the deed was for termination of equity partners who would be inducted by Rajiv Luthra from his equity share, and does not contemplate termination of Saraf from the firm.
It was held that the termination of Mohit Saraf from the Luthra partnership being illegal and in violation of the deed, and in the absence of Luthra’s power to take such an action, Saraf must be reinstated.
The court thus stated that termination from the Luthra partnership was not in good faith because of the following reasons:
(i) The termination was effected by invoking provisions which do not contemplate termination of the petitioner as a partner;
(ii) The termination was effected immediately after the issuance of email dated October 12, 2020 by the petitioner acknowledging the decision of respondent to withdraw / retire from the firm;
(iii) No challenge is made by the respondent to the email dated October 12, 2020;
(iv) In the absence of a challenge to email dated October 12, 2020, the respondent prima facie could not have issued the email dated October 13, 2020; and
(v) The respondent resorted to the termination of the petitioner from partnership and not dissolution/termination of Deed as contemplated under the notice/communication dated January 06, 2020.
On the induction of 23 new equity partners by Saraf and 2 by Luthra, the Court in Luthra partnership dispute noted,
“I have serious doubt on the stand of the parties, for the reason that the induction of partners could have only taken place with the approval of the other partner. It is the case of the parties here, no approval was taken by the opposite party for the induction of respective partners by them. In the absence of any approval, no induction of partner could have been made.
So, it follows on acceptance of withdrawal/retirement of the respondent by the petitioner in terms of email dated October 12, 2020 or termination of partnership of the petitioner vide email dated October 13, 2020 by the respondent, the partnership stood dissolved.”
Mohit Saraf had moved the High Court in October 2020 after he was removed from the L&L partnership by Luthra. Mohit Saraf pressed for the restoration of “last uncontested status” at L&Luthra partnership while his Luthra partnership dispute is referred to arbitration in his petition under Section 9 of the Arbitration & Conciliation Act.
Whereas the High Court had initially suggested that the parties refer their dispute to mediation, the matter found its way back in Court after talks failed to make any headway.
It was also claimed that there was a complete breach of bona fides on the part of Luthra and that the two mandatory 90-day notices required for his termination from the firm as per the deed were not served on him.
Rajiv Luthra,on the other hand, argued that the L& Luthra partnership was an “an unequal marriage” in which he retained certain special rights including the right to oust Saraf from the firm.
While clarifying that he never intended to leave the law firm that he built, Luthra accused Saraf of conduct “unbecoming of a lawyer”, for leaking confidential information of the firm and sharing private WhatsApp communication with third parties.
He thus opposed grant of any relief in the petition on account of the admitted position of both parties that they cannot work together anyone. It was also argued that the relief of reinstatement was barred under the Specific Relief Act.