Bombay High Court: In the present case, an application was filed under Section 11 of the Arbitration and Conciliation Act, 1996 (‘the Arbitration Act’), wherein the issue that arose for consideration was “whether disputes between partners of a limited liability partnership (‘LLP’) and the LLP could at all be covered by the arbitration agreement contained in a LLP agreement to which the LLP was not a signatory?”.
A Single Judge Bench of Somasekhar Sundaresan, J., opined that the subject matter of the LLP Agreement included duties owed by partners to the LLP and duties owed to the partners by the LLP. Thus, this would render the LLP a necessary party to the arbitration proceedings relating to the LLP’s operations and governance, despite the LLP not being a signatory to the LLP Agreement. The Court opined that despite the existence of an arbitration clause in the LLP Agreement and in Item 14 of the First Schedule, the contention that the LLP itself was extraneous to the LLP Agreement governing the LLP, was untenable and frivolous. The Court thus appointed Justice (Retd.) Manoj Sanklecha, a former judge of this Court, and failing him (due to any conflict) Justice (Retd.) Gautam Patel, a former judge of this Court, as the nominee arbitrator of the respondents.
Background
The applicant, a former partner of the respondent, BDO India LLP, was expelled from the LLP and the applicant’s grievance was in relation to the manner of treatment by the respondents, that is, her expulsion from BDO; and the alleged high-handed behaviour and misconduct by BDO’s Managing Partner, in effecting the expulsion. The applicant sought to initiate arbitration, but it was repelled by the respondents and thus, the present application was filed.
Counsel for the respondents stated that Clause 23.1 of the LLP Agreement was clear in its terms that it only covered disputes between partners, and in relation to the subjects set out in it. It was submitted that the disputes between Radia and BDO could not be a dispute among partners of BDO as it was the LLP that expelled Radia and therefore the dispute was between Radia and BDO. Therefore, the application was not maintainable since disputes between Radia and BDO were not arbitrable.
Analysis, Law, and Decision
The Court rejected the contention of the respondents and opined that even a plain reading of the arbitration agreement would show that the subject matter of arbitration would include any construction or application of the LLP Agreement, and it would also include any matter in any way relating to the business and affairs of BDO. The Court also opined that it also included interpretation of any rights, duties, or liabilities of any partner of BDO and thus, it would necessarily entail BDO being a necessary party in a dispute.
The Court relied on Cox and Kings Ltd. v. SAP India Pvt. Ltd., (2024) 4 SCC 1, and opined that “An LLP is not a “third party” to an LLP Agreement in the manner that the concept of “third parties” is conventionally understood. Far from being extraneous to the relationship between the parties to the LLP Agreement, the running of the LLP is the very subject matter of the LLP Agreement”. The Court opined that contending that the LLP was a “third party” to the LLP Agreement was much like arguing that a company was a third party to its own Articles of Association. A company was duty-bound to act in accordance with the Articles of Association and so was an LLP duty-bound to act in accordance with the LLP Agreement. The Court stated that the applicant was the dominus litus and it was for him to choose who to make parties in his claim.
The Court stated that under Item 1 of the First Schedule of the Limited Liability Partnership Act, 2008 (‘the LLP Act’), the mutual rights and duties of the LLP and its partners, subject to the LLP Agreement, was governed by the provisions of the First Schedule and Item 14 of the First Schedule provided that all disputes among partners arising out of the LLP Agreement that could not be resolved in terms of the LLP Agreement, shall be referred to arbitration under the Arbitration Act. The Court opined that the subject matter of the LLP Agreement included duties owed by partners to the LLP and duties owed to the partners by the LLP. Thus, this would render the LLP a necessary party to the arbitration proceedings relating to the LLP’s operations and governance, despite the LLP not being a signatory to the LLP Agreement. Therefore, even if there was no arbitration clause in the LLP Agreement, the First Schedule would lead to an arbitration agreement being in existence in the eyes of law, for disputes among the partners.
The Court accepted the contention of the counsel for the applicant that under Section 26 of the Limited Liability Partnership Act, 2008 (‘the LLP Act’), every partner was an agent of the LLP and under Section 27(2) of the LLP Act, the LLP was liable for the acts of its partners.
The Court opined that despite the existence of an arbitration clause in the LLP Agreement and in Item 14 of the First Schedule, the contention that the LLP itself was extraneous to the LLP Agreement governing the LLP, was untenable and frivolous. The Court further opined that the present issue ought not to have been a matter that detained this Court’s attention when exercising jurisdiction under Section 11 of the Arbitration Act, since the consideration of such an issue would normally fall in the domain of the Arbitral Tribunal.
The Court thus appointed Justice (Retd.) Manoj Sanklecha, a former judge of this Court, and failing him (due to any conflict) Justice (Retd.) Gautam Patel, a former judge of this Court, as the nominee arbitrator of the respondents.
[Kartik Radia v. BDO India LLP, 2025 SCC OnLine Bom 445, decided on 4-3-2025]
Advocates who appeared in this case:
For the Applicant: Amrut Joshi a/w Prashant Trivedi and Petal Chandok i/b Khushboo Jain.
For the Respondents: Gaurav Joshi, Senior Advocate a/w Jatin Pore, Sreeram VG, Karan Jain i/b DSK Legal, for Respondent 1; Mayur Khandeparkar a/w Jatin Pore, Sreeram VG, Karan Jain i/b DSK Legal, for Respondent 2.
Buy Arbitration and Conciliation Act, 1996 HERE
