18 Jan 2121

It is settled law that words in the agreement should be given in an natural and ordinary meaning - Bombay High Court

Case : Mohit Saraf v. Rajiv K Luthra O.M.P.(I) (COMM) 339/2020 and I.As. 9626/2020 & 9772/2020

Court : Bombay High Court

Bench : Justice V. Kameswar Rao

Decided on : 18 Jan 2121

Relevant Statutes

Section 9 of the Arbitration and Conciliation Act 1996

Sections 4, 12, 33 and 44 of the Indian Partnership Act, 1932

Section 14 (d) and Section 41(e) of the Specific Relief Act, 1963

Brief Facts and Procedural History

1. A deed was executed between the petitioner and the respondent and founded the partnership firm L & L Partners. But after some time in 2019, The petitioner and respondent announced the retainer non – equity partners who had been part of the firm for many years now will be inducted as partners into the firm. Afterwards, due to reluctance on behalf of the respondent, no further steps were taken to give effect to the same. On 26th December 2019,  A message was sent to the respondent in which the petitioner communicated the details of which the respondent replied and suggested some other views. The Petitioner only agreed with the amicably parting ways.

2. Afterwards, the respondent issued notice to the petitioner on 6th January 2020 for termination of Delhi Corporate firm which the petitioner denied and said he had not consented to the dissolution of Delhi Corporate Firm and it is in violation of the terms of the deed. After some time, the respondent issued this communication in corporate Whatsapp Group and on 13th September 2020 made a proposal of 20% of equity shares warning them if they do not accept then they are free to leave. He also informed that he had inducted two individuals namely Aniket Sen Gupta and Barish Kumar and sent the mail to all the members about the termination of the partnership.

3. Later, The Petitioner alleged some breaches by the respondent like  Unethical demands made by the respondent from one of the clients, The respondent is in wrongful possession of retainer ship agreement of both Delhi Corporate  Firm and Mumbai Corporate Firm, Ousting the petitioner from the partnership and depriving him carrying on the business of Delhi Corporate Firm constitute a material breach.  Respondent unrealistic and grossly insufficient equity dilution proposals. The respondent also unreasonably without the consent of the petitioner demanded the resignation of a Senior Partner of the Delhi Corporate Firm. The Present Application was filed by the petitioner under Section 9 of the Arbitration and Conciliation Act, 1996.

The issue of the Case

Whether the termination of partnership is illegal or Whether the respondent has the power to terminate the petitioner from the firm as per the deed?

The Observations of the Court

1. The Honourable Bombay High Court referred one judgment i.e. Kesavji Ravji and Co. & Ors,1990 (2) SCC 231  and agreed with the fact that the partners in the firm stand on equal footing i.e. one partner acts as an agent of the other and together they constitute a firm. It is not a master-servant relationship.  The Honourable High Court referred to another judgment i.e. K.D. Kamath and Co. vs. CIT, 1971 (2) SCC 873, It is a settled law partner in a firm can agree to share the profits in any manner but still, they continue to be partners as agents for each other.

2. The Honourable Bombay High court observed that according to Section 4 of the Partnership Act, 1932  It is open to two partners to allow the business of the partnership to be conducted by one of the partners and referred to one of judgment i.e. Pratibha Rani vs. Suraj Kumar, AIR 1985 SC 628. The Honourable Bombay High Court observed that if no partner has a dominant status even one partner has extra rights. In Another judgment i.e. Jaguar Overseas Ltd. vs. Seagull Maritime Agencies Pvt. Ltd, OMP (1) COMM 183/2020, It was held that The Court has the power to pass an interim order of protection under Section 9 of the Arbitration and Conciliation Act, 1996 if the rights of a party will be adversely affected pending arbitration and held that if the court finds a prima facie case, the court may grant reliefs which it deems appropriate in the prayer made by the petitioner.

3. The Honourable Bombay High Court referred to Clause 7 A and 10 B of the Deed and observed that any merger, amalgamation of the firm with any Indian law firm require the approval of both respondent and the petitioner but the earlier part of Clause 7 A cannot be construed as the power of the respondent to terminate the petitioner. Any performance appraisal of the petitioner cannot lead to termination. The word termination and performance review under Clause 7A is for who could be inducted by the respondent with his share and also it is inductive from Clause 9 of the deed which mentions the consequences of the termination.

4. The Honourable High Court observed that there is so much of a clause of expulsion and due to this the expulsion of the petition cannot be affected. The Honourable High Court observed that termination of the petitioner is not in good faith and for this the Honourable High Court relied upon Section 33 of the Indian Partnership Act, 1932  and judgment i.e. Dr. S Vel Arvind vs. Dr. Radhakrishnan (2018) 4 Mad LJ 468, it was held that if there are no explicit provisions regarding the expulsion of partners in the agreement, then the only remedy which is available is to recourse to Section 44 of Indian Partnership Act, 1932. It was also stated that Section 33 of the Indian Partnership Act, 1932  also does not contemplate the expulsion unless it is specified in the agreement made between the parties.

5. The Honourable High Court observed that there is no implied power to terminate the partnership of the petitioner.  It is settled law that words in the agreement should be given in a natural and ordinary meaning. The Honourable High Court observed that the attempt for amicable resolution went on for months and notice needed for the resolution is not appealing. The Honourable High court also observed that no notice is given to petition regarding the disclosing reasons for the termination which is against the principles of natural justice

6. The Honourable High Court observed that the induction of the partners with management rights have not been with the concurrence of the petitioner according to Clause 7 D of the Deed. The Honourable High Court referred to another judgment i.e. C.I.T vs. Posetty & Co, 1996 (11) SCC 11, It was held that if one of the partners agrees to share the profit with any stranger, that does not make the stranger a partner in the original firm as it only constitutes sub – partnership. The Honourable High Court held that the issue of non-joinder of the partners alleged to have been inducted is rejected and the deed contains the arbitration clause between the partners not with the inducted partners. 

7. The Honourable Bombay High Court held that Section 14 (d) and Section 41(e) of the Specific Relief Act 1963 have no applicability here as it is the settled law of the contract is not determinable then the court has the power to enforce. 

The Decision Held by the Court

1. The Honourable Bombay High Court concluded that the termination of the partnership is illegal and a violation of the deed in terms of an email dated October 13, 2020, as per Section 12 of the Indian Partnership Act, 1932. 

2. The Bombay High Court directed the stay of operation of the email dated October 13, 2020, which terminated the petitioner from the partnership till the conclusion of the prospective abreaction proceedings.

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