Delhi High Court Stays Termination of Mohit Saraf from L&L Partners Law Firm Pending Conclusion of Arbitration Proceedings

New Delhi, Jan 18: In a major relief to L&L Partners Senior Partner Mohit Saraf, the Delhi High Court today stayed his termination, pending the conclusion of arbitration proceedings with the capital-based law firm’s founder and managing partner Rajiv Luthra.

The verdict in the high-profile dispute, delivered by a Single Judge Bench of Justice V Kameswar Rao, was reserved on December 9 last year.

In his judgment, Justice Rao observed that prima facie the termination of the petitioner (Saraf) from partnership by the respondent (Luthra) through an email of October 13, 2020 would be in violation of the Deed and the Partnership Act, where a partner has the right to take part in the conduct of the business.

While agreeing with Saraf’s contention that the termination was not in good faith, the court noted that keeping away the petitioner from the partnership business shall be to his prejudice, if he finally succeeds in the prospective arbitration proceedings.

On the issue of the status of Saraf and Luthra as partners of the firm, the judge said, "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."

On the question of Saraf's termination from the partnership, the court, while deliberating on the clauses of the partnership deed, concluded that when the later part of Clause 7A contemplates approval of the respondent (Luthra) and petitioner (Saraf) in the decision-making process, then the earlier part of that Clause 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 decision with regard to amalgamation, merger, collaboration and buy-out of the firm by third parties. This clause appears to be at variance with the initial limb of Clause 7A,” the judge noted in his order.

Justice Rao held that when a vital decision with regard to buy-out of firm requires the concurrence of both the petitioner and the respondent, 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.

The court took the prima facie 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.

With regard to Saraf's contention that his termination from the partnership of the firm was not in good faith, the court held that it was effected by invoking provisions which do not contemplate termination of the petitioner as a partner.

Prima facie, it was held that Saraf’s termination from the partnership was illegal and in violation of the deed and Luthra did not have the power to take such an action.

Saraf had moved the High Court in October last year after he was terminated from the L&L partnership by Luthra. The relationship between the two senior-most partners had become embittered over the dilution of the firm's equity.

The court had initially suggested that the litigants resolve their dispute through mediation and appointed Mr. Sriram Panchu, Senior Advocate, as the Mediator. However, the mediation efforts fizzled out after talks failed to break the impasse.

Saraf had pleaded before the court that there was no master-servant relationship between them, and his ouster from the law firm was illegal and unless the L&L partnership was dissolved, he would continue to be a partner. Luthra, on the other hand, argued that the L&L partnership was an "an unequal marriage" in which he retained certain special rights, including the right to oust Saraf from the firm.

Mohit Saraf’s petition was filed by Sandeep Das, Advocate on Record. Senior Advocates Parag Tripathi and Arvind Nigam argued for Saraf.

Senior Advocates Abhishek Manu Singhvi, Neeraj Kishan Kaul and Amarjit Singh Chandhiok had appeared for Luthra.

Judgment delivered on January 18, 2021.pdf

Information received from L&L Partners.