ALABAMA DESIGN CONSULTANTS LLP vs MS PAYAL SANDHU KHURANA
- Court
- Karnataka High Court
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COMAP No. 314 of 2025
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
ST
DATED THIS THE 1 DAY OF JUNE, 2026
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MR. JUSTICE C.M. POONACHA
COMMERCIAL APPEAL NO. 314 OF 2025
BETWEEN:
1. ALABAMA DESIGN CONSULTANTS LLP
A LIMITED LIABILITY PARTNERSHIP
INCORPORATED UNDER THE
LIMITED LIABILITY PARTNERSHIP ACT, 2008
HAVING ITS REGISTERED OFFICE AT 3C-137
RD RD ND
3 FLOOR, 3 CROSS, 2 MAIN
KASTURI NAGAR, BANASWADI
BENGALURU - 560 043
REPRESENTED BY ITS
AUTHORIZED SIGNATORY
MR. UDAYA SHANKAR KRISHNAPPA
2. SDSS MANAGEMENT SERVICES LLP
A LIMITED LIABILITY PARTNERSHIP
INCORPORATED UNDER THE
LIMITED LIABILITY PARTNERSHIP ACT, 2008
HAVING ITS REGISTERED OFFICE AT
RD ND
NO.3C-137, 3 FLOOR, 2 MAIN ROAD
RD
3 CROSS ROAD, KASTURI NAGAR
EAST OF NGEF LAYOUT
BENGALURU - 560 043
REPRESENTED BY ITS
AUTHORISED SIGNATORY
MR. DEEPAK NAGRAJ
3. MR. UDAYA SHANKAR KRISHNAPPA
RESIDING AT NO.152, GROUND FLOOR
Digitally
signed by
VEERENDRA
KUMAR K M
Location:
High Court of
Karnataka
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COMAP No. 314 of 2025
CHANDRASHEKARAN ROAD
RD
BEML 3 STAGE, R.R. NAGAR, VTC
PO: RAJARAJESHWARINAGAR
BENGALURU - 560 098
…APPELLANTS
(BY SRI C.K. NANDA KUMAR, SENIOR ADVOCATE A/W
SRI TEJAS S.R., ADVOCATE)
AND:
1. MS. PAYAL SANDHU KHURANA
RESIDING AT Q 503
ROHAN JHAROKHA APARTMENTS
PHASE 2, YEMALUR MAIN ROAD
BEHIND HAL AIRPORT
BENGALURU - 560 037
2. JUSTICE ANAND BYRAREDDY
HIGH COURT JUDGE (RETD.) -
SOLE ARBITRATOR
ARBITRATION AND CONCILIATION CENTRE
BENGALURU (COMESTICE & INTERNATIONAL)
RD
3 FLOOR, EAST WING
KAHNIJA BHAVAN, RACE COURSE ROAD
BENGALURU - 560 001
…RESPONDENTS
(SRI DHYAN CHINNAPPA, SENIOR ADVOCATE A/W
SRI SARAH ABRAHAM, ADVOCATE FOR R-1;
VIDE ORDER DATED 29.07.2025, R-2 IS DELETED)
THIS COMMERCIAL APPEAL IS FILED UNDER SEC.13(1-A) OF
COMMERCIAL COURTS ACT, 2015 PRAYING TO SET ASIDE THE
JUDGMENT DATED 12.03.2025 IN COM.A.P.NO.66/2023, PASSED BY
THE COURT OF LXXXVII ADDITIONAL CITY CIVIL AND SESSIONS
JUDGE, BENGALURU (ANNEXURE - A) AND ETC.
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COMAP No. 314 of 2025
THIS COMMERCIAL APPEAL HAVING BEEN HEARD AND
RESERVED FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT
THIS DAY, JUDGMENT WAS PRONOUNCED AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MR. JUSTICE C.M. POONACHA
C.A.V. JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. Appellant No. 1 - M/s Alabama Design Consultants LLP — a
Limited Liability Partnership(hereinafter referred to as ‘ Alabama
LLP ’) incorporated under the Limited Liability Partnership Act,
2008;appellant No. 2 - M/s SDSS Management Services LLP
(hereinafter referred to as ‘ SDSS ’), and appellant no. 3, Mr. Udaya
Shankar Krishnappa, have filed the present appeal under Section
37(1)(c) of the Arbitration and Conciliation Act, 1996 (hereinafter
referred to as ‘ the A&C Act ’), impugning an order dated 12.03.2025
(hereinafter ‘ the impugned order ’) passed by the LXXXVII
Additional City Civil and Sessions Judge (Commercial Court),
Bengaluru (hereinafter referred to as ‘the Commercial Court’ ) in
Com.A.P.No.66/2023.The respondent had filed the said petition
under Section 34 of the A&C Act, praying for setting aside of the
arbitral award dated 21.03.2023 (hereinafter ‘ the impugned
award ’) passed by the Sole Arbitrator (hereinafter ‘ the Arbitral
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COMAP No. 314 of 2025
Tribunal ’). The learned Commercial Court allowed the said petition
and set aside the impugned award as vitiated by patent illegality.
2. The dispute, broadly stated, arises from the expulsion of the
respondent as a partner of Alabama LLP and the consequences
thereof. The respondent had invoked arbitration by filing C.M.P. No.
358/2022 before this Court under Section 11 of the A&C Act, which
was allowed and the arbitral tribunal was constituted. The
respondent preferred various claims before the arbitral tribunal and
the appellants filed counter-claims. The arbitral tribunal rejected the
claims and partly allowed the counter-claims. The impugned award,
which substantially decided the disputes in favour of the appellants,
was set aside by the Commercial Court on the ground that the same
was vitiated by ‘patent illegality’ within the meaning of Section
34(2A) of the A&C Act.
3. Before considering the challenge in the present appeal, it is
relevant to set out the context in which the controversy arises.
PREFATORY FACTS
4. A partnership firm by the name of ‘Design Alphabet’ was
constituted on 27.04.2018 by and between the third appellant and
one Mr. Prabhprit Singh Kochar (hereinafter referred to as
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COMAP No. 314 of 2025
‘Mr.Kochar’ ), for the purpose of undertaking the business as
engineers, consultants and contractors, including civil, electrical,
mechanical, architectural, plumbing, structural, environmental and
air conditioning work, and to provide integrated turnkey solutions.
The respondent was not a party to the said partnership deed.
5. On 18.03.2019, M/s Design Alphabet, through its partners,
executed Share Purchase Agreements for acquiring 70% (seventy
percent) of the equity stake in M/s Adrianse India Private Limited
(hereinafter referred to as ‘ AIPL ’) through Share Purchase
Agreement dated 18.03.2019 [Ex. C1 & C1(a)] for a consideration of
USD 400,000 as per the principal agreement. Consequent to the
said acquisition, the shares in AIPL were held by M/s Design
Alphabet (holding 70%) and Mr. Atul Kukreja (holding 30%). It is
material to note that Mr Kochar had contributed ` 5,20,00,000/-
(Rupees Five Crores Twenty Lakhs only) as of 31.03.2019, which
amount was utilised towards the acquisition of AIPL shares and the
capital expenditure of the office of Design Alphabet. The same was
reflected in the partner’s current capital account, in the financial
statements of Design Alphabet (Ex. R8).
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COMAP No. 314 of 2025
6. The respondent joined AIPL as an employee on 03.04.2019. It
is pertinent to note that the respondent was not a partner of Design
Alphabet at this stage.
7. On 25.07.2019, Design Alphabet was converted into a Limited
Liability Partnership under the Limited Liability Partnership Act,
2008, and was registered under the name ‘Alabama Design
Consultants LLP’, i.e., the first appellant herein. The Main LLP
Agreement dated 25.07.2019 (hereinafter referred to as ‘ the Main
LLP Agreement ’) (Ex. C4) was executed by and between Mr.
Kochar and the third appellant as the designated partners. At the
time of executing the Main LLP Agreement, the capital contribution
of the third appellant and Mr. Kochar was 10% (ten percent) and
90% (ninety percent), respectively. It was agreed that the profit and
loss would be shared in the said ratio.
8. On 29.07.2019, Mr. Kochar resigned as a partner of Alabama
LLP (Ex. RD1). A meeting of the partners was held on the same
date to discuss the restructuring of the LLP and the manner in which
the capital contribution and loan of Mr. Kochar would be repaid (Ex.
RD2). Subsequently, on 29.08.2019, the 1st Supplementary LLP
Agreement (hereinafter referred to as ‘ the 1st Supplementary
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COMAP No. 314 of 2025
Agreement ’) (Ex. R3) was executed, by virtue of which: (a) Mr.
Kochar’s resignation as a partner was recorded; (b) SDSS and the
respondent were inducted as partners of Alabama LLP; and (c) Mr.
Sukant Gupta (representative of SDSS) and the third appellant were
designated as the Designated Partners. The 1st Supplementary
Agreement was filed with the Registrar of Companies on
31.08.2019.
st
9. In terms of the 1 Supplementary Agreement, the capital
contribution and profit/loss sharing ratio of the partners of Alabama
LLP was as follows: SDSS was to contribute ` 7,00,000/- (Rupees
Seven Lakhs only) for a 70% (seventy percent) interest; the third
appellant was to contribute Rs. 1,50,000/- (Rupees One Lakh Fifty
Thousand only) for a 15% (fifteen percent) interest; and the
respondent was to contribute ` 1,50,000/- (Rupees One Lakh Fifty
Thousand only) for a 15% (fifteen percent) interest. Clause 6 of the
st
1 Supplementary Agreement provided that profit and loss shall be
shared between the partners in the following ratio, "Mr. Uday
Shankar Krishnappa - 15%; M/s SDSS Management LLP - 70%;
Ms. Payal Sandhu Khurana - 15%". The respondent furnished her
contribution on 29.11.2020 (Ex. CD14).
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COMAP No. 314 of 2025
10. On 17.07.2020, a notice of separation from AIPL was sent to
the respondent (Ex. CD9). The respondent’s separation from AIPL
took effect from 15.09.2020. Admittedly, from August 2020 onwards,
the respondent undertook consulting work for M/s Vestian pertaining
to a project at Hebbal in Bengaluru and received consideration for
the same. This was acknowledged by her during her cross-
examination before the Arbitral Tribunal.
11. A meeting of the partners of Alabama LLP was held on
25.11.2020 (Ex. RD6). At the said meeting, inter alia , the financial
statements for the financial year ending 31.03.2020 were approved,
and Clause 13 of the Main LLP Agreement, pertaining to the
expulsion of a partner, was amended. Prior to the amendment,
Clause 13.1 of the Main LLP Agreement provided that the majority
of partners could not expel any partner except in the situation where
the partner had been found guilty of carrying on the activity/business
of the LLP with a fraudulent purpose. The amendment, effected by
way of the 2nd Supplementary LLP Agreement dated 25.11.2020
(hereinafter ‘ the 2nd Supplementary Agreement ’) (Ex. C14),
introduced an additional ground for expulsion, namely, the failure of
a partner to pay his/her contribution towards the capital of the LLP.
The appellant claim that notice of the meeting, along with the
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agenda and the audited financial statements, was sent to the
respondent on 18.11.2020 (Ex. CD10). This is disputed by the
nd
respondent. The respondent did not sign the 2 Supplementary
Agreement. The said agreement was nevertheless filed with the
Registrar of Companies on 23.12.2020.
12. A further meeting of the partners of Alabama LLP was held on
23.12.2020 (Ex. RD7), wherein the signing of the 2nd
Supplementary Agreement was discussed. The respondent
attended this meeting and raised certain objections regarding the
manner in which the meeting had been conducted on 25.11.2020.
rd
13. Subsequently, the 3 Supplementary LLP Agreement dated
rd
07.05.2021 (hereinafter ‘ the 3 Supplementary Agreement ’) was
executed, amending Clause 6 of the Main LLP Agreement in
relation to the capital contribution structure and profit/loss sharing
ratio (Ex. C27). Thereafter, at the partners' meetings held on
15.03.2021 and 01.04.2021 (Ex. RD3; Ex. R4), the partners were
called upon to contribute additional capital in proportion to their
profit/loss-sharing ratio for the repayment of the loan advanced by
Mr. Kochar in two instalments. The respondent did not contribute
her share of the first instalment, and the appellants state that SDSS
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COMAP No. 314 of 2025
was constrained to pay the same. The consequent changes to the
rd
capital structure were recorded in the 3 Supplementary
Agreement, whereby the respondent's share stood diluted from 15%
to 0.58%. Subsequently, by a letter dated 13.05.2021 (Ex. C25),
Alabama LLP called upon the partners to contribute additional
capital towards the repayment of the second instalment of the loan.
The respondent, in her communication dated 14.05.2021, stated
that she would not pay her portion. In view of the respondent's
refusal, the remaining partners contributed the requisite amounts,
and the respondent's share was further diluted from 0.58% to
th
0.28%, as recorded in the 4 Supplementary LLP Agreement dated
22.06.2022 (Ex. RD18). It is pertinent to note that the respondent
has admitted in her cross-examination before the Arbitral Tribunal
that she did not contribute any additional capital, while admitting that
SDSS and the third appellant had done so.
14. It is the case of the appellants that, from at least November
2021 onwards, the respondent was associated with M/s Zyeta
Interiors Private Limited / M/s Zyeta Studios Private Limited
(hereinafter collectively referred to as ‘ Zyeta ’), which is stated to be
a direct competitor as it is in the same business as Alabama LLP.
The appellants contend that the respondent had an email address
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COMAP No. 314 of 2025
registered with the domain Zyeta; had visited clients of the entities
with which Alabama LLP was engaged; had participated in
engagements with prospective clients as a representative of Zyeta;
and had failed to respond to various communications from Alabama
LLP seeking clarification on the subject. The respondent, on the
other hand, disputed the said allegations.
15. A meeting of the partners was held on 16.05.2022 (Ex.
RD15), wherein the alleged engagement of the respondent with
Zyeta was discussed and a decision was taken to issue a show
cause notice to the respondent. Accordingly, by a show cause
notice dated 18.05.2022 (Ex. C37), Alabama LLP called upon the
respondent to explain as to why she should not be expelled from the
LLP as a partner, in view of the alleged breach of her obligations
under the Main LLP Agreement. The respondent furnished her
response to the show cause notice on 25.05.2022 (Ex. C38).
Thereafter, a meeting of the partners was held on 26.05.2022 (Ex.
C39), at which the respondent was not present, and by a unanimous
resolution, the attending partners resolved to expel the respondent
as a partner of Alabama LLP with effect from 12:00 PM on
26.05.2022. A notice of expulsion was issued to the respondent on
the same date (Ex. C39).
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16. Thereafter, by a letter dated 24.06.2022, Alabama LLP
returned the respondent’s capital contribution of ` 1,50,000/-
(Rupees One Lakh Fifty Thousand only) by way of a demand draft
dated 22.06.2022 (Ex. C43). The said demand draft was returned by
the respondent.
17. The respondent had invoked arbitration under Clause 34 of
the Main LLP Agreement by notice dated 16.07.2021, and the
appellants, by their reply dated 09.08.2021, while consenting to the
reference of disputes to arbitration, declined to accept the
respondent's nominee as the Sole Arbitrator. The parties having
thus failed to agree on the constitution of the tribunal, the
respondent approached this Court by filing C.M.P. No. 358/2022 on
28.02.2022 under Section 11 of the A&C Act. During the pendency
of the said petition, the respondent came to be expelled as a partner
on 26.05.2022 in the circumstances noticed above. Thereafter, by
an order dated 22.06.2022 in C.M.P. No. 358/2022, this Court
appointed a former Judge of this Court as the Sole Arbitrator, and
the arbitral tribunal stood constituted.
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ARBITRAL PROCEEDINGS
18. The respondent filed her Statement of Claims before the
Arbitral Tribunal, seeking, inter alia , the following reliefs:
“1. Declare that the purported expulsion of the
Claimant from the 1 Respondent, vide notice dated
26.05.2022 as illegal, null and void and not binding on
the Claimant.
2. To set aside the purported expulsion of the Claimant
vide notice dated 26.05.2022 and reinstate the
Claimant as the Partner of the 1st Respondent LLP in
terms of the Main LLP Agreement dated 25.07.2019
read along with the 1st Supplementary Agreement
dated 30.07.2019.
3. To set aside the amendment to clauses. 6 and 13 of
the Main LLP Agreement dated 25.07.2019, made by
virtue of 2nd and 3rd. Supplementary Agreements
dated 25.11.2020 and 7.05.2021 respectively.
4. Appoint an independent valuer to value the 1st
Respondent LLP as a 'going concern' taking into
account it's 70% holding in Adrianse India Pvt Ltd.
5. Direct the 1st Respondent to pay a sum of INR
4,88,88,000/- (Rupees Four Crores Eighty Eight Lakhs
and Eighty Eight Thousand) towards the exit valuation
of the Claimant from the 1st Respondent LLP, with
interest thereto at 18% p.a from 22.08.2022 till date of
award and till the date of payment. Alternatively direct
st
the 1 Respondent to pay such incremental sum
st
derived from the valuation of the 1 Respondent by an
independent valuer appointed by this Hon’ Tribunal,
st
equivalent to her 15% holding in the 1 Respondent,
along with interest thereto, at 18% p.a from 22.08.22 till
the date of the award and till the date of payment.
6. Appoint an independent Chartered Accountant to
st
audit the books of accounts of the 1 Respondent LLP
and submit a report to this Hon. Tribunal for the dispute
period namely April 2019 till date.
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7. Direct the Respondents 1-3 to pay a sum of Rs.
1,50,00,000 (Rupees One Crore Fifty Lakhs) towards
damages together with interest at the rate of 18% per
annum from 22.08.2022 till the date of award and till
the date of payment, for willful oppressive actions
against the Claimant coupled with mental agony,
disparaging the reputation of the Claimant in the
industry and for purposefully choking the livelihood of
the Claimant.
8. Grant costs of the Arbitration as also stamp duty
payable on the award
9. Any further Orders.”
19. The appellants filed their Statement of Reply and Counter
Claim before the Arbitral Tribunal denying the claims of the
respondent and seeking dismissal thereof. The appellants also
raised counterclaims against the respondent, inter alia, seeking a
sum of approximately ` 38,50,000/- (Rupees Thirty Eight Lakhs and
Fifty Thousand only) as tentative profit allegedly earned by the
respondent during her engagement with Zyeta while continuing as a
partner of Alabama LLP, ` 5,00,00,000/- (Rupees Five Crores only)
as damages. They also sought certain injunctive reliefs.
20. The Arbitral Tribunal framed the following points (thirty-five in
number) for determination:
" POINTS FOR DETERMINATION
1. Whether the can include respondent No.4, M/s Adriane
India Private Limited, New Delhi, as a party to this
Arbitration, before this Tribunal, without the said party
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being included in the reference by the Hon. High Court of
Karnataka, to this Tribunal? And without being impleaded
by this Tribunal?
2. Whether the claimant proves that this Tribunal would
have jurisdiction over respondent No.4?
3. Whether the claimant proves that she had associated
with the respondent No.3 and his associate,
Mr.P.S.Kochar, in establishing the firm, Design Alphabet,
and had been involved with its activities and business,
before she was inducted as a partner of respondent No.1
firm?
4. Whether the claimant proves that there were business
offers made to her by Mr.Kochar during January 2018,
and those offers had remained the same, when she
eventually was inducted as a partner of respondent No. 1
firm, over 16 months thereafter?
5. Whether respondent Nos. 1 to 3 prove that the claimant
had no access to the Share Purchase Agreements and
Shareholders Agreements - that had been executed prior
to the claimant becoming a partner of respondent No.1?
6. Whether the respondent Nos. 1 to 3 prove that they had
provided the claimant with all relevant information
pertaining to the subject that was to be taken up at the
meeting of the partners of respondent No.1, as on
25.11.2020, with ample time to enable any objection or
questions being raised even if she was not able to attend
the meeting physically?
7. Whether the claimant proves that the second
Supplementary LLP Agreement, which included an
amendment to Clause 13 of the main LLP Agreement,
which contemplated an expulsion of a partner, when there
is default in making their capital contribution to the firm,
was deliberately aimed at her and that it was also, Per se,
unlawful?
8. Does the claimant prove that the resolutions passed at
the meeting of the partners of respondent No.1 on
25.11.2020, was unlawful and void ab initio?
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9. Whether the claimant proves that the agenda of the
meeting of the partners of respondent No.1, dated
15.03.2021, was in respect of payment of a non-existent
and unaudited loan, and the decision to approve the
same, as being unlawful?
10. Whether the respondent Nos. 1 to 3, prove that the
meeting that was held on 01.04.2021, of the partners of
respondent No.1, was necessary to be held physically and
the request of the claimant to hold it virtually, being
denied, was justified?
11. Whether the claimant proves that the majority of the
partners of respondent No.1, with the aid of Mr. Kochar,
were intent on ousting the claimant from the partnership?
12. Whether the respondent Nos. 1 to 3 prove that the
stake of the claimant was legitimately reduced from 15%
to 0.58%, on account of her not having made an additional
contribution to the capital fund of the firm, as was made by
the other partners?
13. Whether the claimant proves that any increase or
reduction in the amount of capital of the respondent No.1
firm, required the assent of all the partners of the firm, as
per the main LLP Agreement?
14. Whether the claimant proves that the respondent Nos.
1 to 3, were not justified in seeking a contribution of Rs.
1,58,684/- as the claimant's contribution of capital, for the
repayment of a loan, as per email dated 13.05.2021?
15. Whether the respondent Nos. 1 to 3 prove that the
claimant has committed breach of the main LLP
Agreement by virtue of being employed with M/s Zyeta
group of companies, while contributing to be a partner in
respondent No. 1?
16. Whether the respondent Nos. 1 to 3 prove that the
claimant has parted with confidential information of the
respondent No. 1 firm to one entity by the name of
Gnanoba & Bhat?
17. Whether the respondent Nos. 1 to 3 prove that the
claimant has been misusing, for the benefit of a
competitor, the relationships built up in the business of the
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respondent No.1, as endorsed by several persons, of the
activities of the claimant in that direction?
18. Whether the claimant proves that the allegations of the
claimant of gross discrimination of the claimant as a
woman and hence not being allowed to evolve
successfully in the business is true?
19. Whether the claimant proves that her expulsion from
respondent No.1, as a partner, is illegal and that she is
entitled to a sum of Rs.4.89 Crore, towards her exit, as
valued?
20. Whether the claimant proves that she is entitled to
both the reliefs, of reinstatement and the exit valuation,
and such a prayer, which is not in the alternative, is
maintainable?
21. Whether the respondent Nos. 1 to 3, prove that the
claimant had misused the confidential information of the
respondent No.1 and its related entities, by illegally
employing herself with the Zyeta Group of companies, a
direct competitor of the said respondent No.1, while
continuing to be a partner of respondent No. 1?
22. Whether the respondent Nos. 1 to 3, prove that they
had convened 4 partners' meetings, as on 15.12.2021,
22.12.2021, 16.05.2022 & 26.05.2022 only to discuss with
the claimant of her activity, as mentioned in point 21
above, which was a blatant breach of the contract, to
which the claimant had not responded?
23. Whether the respondent Nos. 1 to 3 prove that the
claimant had misrepresented herself as a founder partner
of respondent No. 1 and thereby caused loss of reputation
to the said respondents?
24 Whether the respondent Nos. 1 to 3 prove that they are
entitled to injunctory reliefs against the claimant from
continuing to use confidential information gained from said
respondents for her benefit of any competitor, by the
claimant?
25. Whether the respondent Nos. 1 to 3 prove that the
claimant is bound to pay a sum of Rs.38.50 lakh as the
tentative profit she had made on her association with the
Zyeta Group of Companies, even when being employed
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with the said respondent No.1, from November, 2021 to
May 2022, when she was expelled from respondent No.1?
26. Whether the Respondent No. 1 proves that it is
entitled to a sum of Rs. 5 Crore, as damages on the
ground that sensitive business information of the said
Respondent, was misused by the Claimant, to obtain
projects for its competitor?
27. Whether the Respondent Nos. 1 to 3, are entitled to
interest on the amounts claimed. And what rate?
28. Whether the expulsion of the claimant from
partnership was valid and legal?
29. Whether the respondents are entitled to the reliefs
claimed at IV to VII of the counter-claims?
30. Which of the parties, are entitled to costs of these
proceedings?
31. Which of the parties are entitled to which of the claims
made and at what rate of interest and from when?
32. Whether the alteration of the capital Structure vide the
IV Supplementary Agreement, dated 22.06.2022, is
sustainable in the event of reinstatement of the claimant?
33. Whether the claimant proves that the amendments to
Clause 6 and Clause 13 of the main LLP Agreement,
dated 25.07.2019, by virtue of the II Supplementary LLP
Agreement, dated 25.11.2020 and the III Supplementary
LLP Agreement, dated 07.05.2021 are illegal, null, void
and not binding on the claimant?
34. Whether the claimant proves that respondent Nos. 1
to 3 have caused the claimant to face severe livelihood
challenges?
35. Whether the claimant is entitled to reinstatement as a
partner of the first respondent LLP?"
21. Pursuant to an interlocutory application filed by the appellants,
the Arbitral Tribunal, by an interim award dated 20.11.2022,
permitted to implead AIPL as the fourth respondent. The said
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interim award was challenged by the appellants and AIPL before the
LXXXIV Additional City Civil and Sessions Judge (Commercial
Court), Bengaluru, in Com.A.P.No.127/2022 and
Com.A.P.No.128/2022, respectively. The Commercial Court allowed
the said petitions and set aside the interim award dated 20.11.2022.
The said order attained finality, as it was not challenged by the
respondent.
22. Before the Arbitral Tribunal, the respondent led evidence and
examined herself as CW-1 (the respondent herself). She also
produced documents that were marked as Exhibits C1 to C45 and
Exhibits CD1 to CD19. The appellants also led their evidence and
produced documents marked as Exhibits R1 to R15 and RD1 to
RD20. Based on a suggestion by the Arbitral Tribunal, the
documents were bifurcated into admitted documents (C/R series)
and disputed documents (CD/RD series), the latter being marked for
identification purposes. In the minutes of the seventh meeting dated
04.01.2023, the Arbitral Tribunal recorded that the admissibility or
veracity of the disputed documents would be decided by the Arbitral
Tribunal having regard to other material, evidence and
circumstances placed before it.
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IMPUGNED AWARD
23. On 21.03.2023, the Arbitral Tribunal delivered the impugned
award. The key findings of the Arbitral Tribunal, relevant for the
purposes of the present appeal, may be briefly noted as follows:
(a) The arbitral tribunal held that the respondent had failed
to prove that she had associated with the third appellant and Mr
Kochar in establishing Design Alphabet, or that she had been
involved with its activities and business before her induction as a
partner (Points of Determination Nos. 3) ; and further held that she
had failed to prove that the business offers made to her by Mr
Kochar in January 2018 had remained unchanged when she was
eventually inducted as a partner (Point of Determination No. 4).
(b) The arbitral tribunal held that the respondent had failed
to prove her expulsion was illegal or that she was entitled to any exit
valuation, and that the appellants had established that the expulsion
.
was valid and legal (Points of Determination Nos. 19 & 28) ;
(c)The arbitral tribunal answered Points of Determination
Nos. 15 and 21 together and, holding that the respondent was
engaged with Zyeta, a competitor, while being a partner of Alabama
LLP, answered Point No. 15 in favour of the appellants; it did not,
however, record any separate finding on Point No. 21.;
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(d) The arbitral tribunal held, in relation to Point of
Determination No. 25, that the amount claimed by the appellants
towards tentative profit was wholly speculative. The arbitral tribunal,
however, held that the appellants were entitled to Rs. 15,00,000/-
(Rupees Fifteen Lakhs only) as compensation, with interest at 12%
per annum (to be revised to 18% per annum in the event of default);
(e) The arbitral tribunal held, in relation to Point of
Determination No. 26, that Respondent No. 4 (Adrianse India
Private Limited) had failed to establish their claim for Rs.
5,00,00,000/- as damages, there being no information from Zyeta
regarding the number of projects obtained using information
provided by the respondent;
(f) The respondent was held to have failed to make out a
case in her favour on any of the grounds urged, and was
accordingly held not entitled to the relief of reinstatement as a
partner of Alabama LLP.
24. The dispositive part of the impugned award is set out below:
"AWARD
a. The Claimant has failed to prove her case and is
hence disentitled to any of the Claims by her;
b. Respondents no. 1 to 3 have proved several of the
Points as framed by this Tribunal and as detailed
above. In particular, the said respondents have proved
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COMAP No. 314 of 2025
Point no.25 in their favour and are entitled to receive a
sum of Rs. 15,00,000/- (Rupees Fifteen lakh, with
interest thereon, at 12% per annum. The said sum
shall be paid within a period of three months from the
date of this Award. In the event of a default, the
amount shall carr у interest at the rate of 18%, from the
date of default till the date of actual payment.
c. The Claimant shall pay and bear the respondents'
cost of these proceedings, apart from its own that may
have been paid, in terms of Section 31A of the
Arbitration and Conciliation Act, 1996.
d. The Claimant is restrained from continuing to use
any confidential information gained from the
respondents, including respondent no.1 and its related
entities, for the benefit of any competitor.
i) The Claimant is restrained by way of Permanent
Injunction from breaching the terms of the main LLP
Agreement;
ii) The Claimant is restrained by way of permanent
injunction from publishing or making defamatory
statements that may cause disrepute or damage to the
reputation against the respondents 1 to 3;
iii) The Claimant is restrained by way of Permanent
Injunction from passing any confidential information
belonging to the R-1;
iv) The Claimant is directed by way of Mandatory
Injunction to deliver up and handover to R-1 all
confidential information belonging to R-1;
e. Signed copies of this Award are delivered to the
parties through their counsel.
f. The stamp duty payable on the Award may be paid
by the Claimant, if the Respondent does not
immediately supply the same and is entitled to recover
such stamp duty from the Respondent in terms of this
Award."
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COMAP No. 314 of 2025
PETITION UNDER SECTION 34 OF THE A&C ACT
25. Aggrieved by the impugned award, the respondent filed a
petition under Section 34 of the A&C Act before the Commercial
Court, being Com.A.P.No.66/2023, seeking to set aside the
impugned award. The respondent challenged the impugned award,
inter alia , on the following grounds:
(a) that the Arbitral Tribunal had awarded costs to the appellants
without following the principles under Section 31A, and without
awarding similar costs against the appellants for their unsuccessful
counter claims;
(b) that the permanent and mandatory injunctions were couched
in language bereft of details or specifics, culminating in alteration of
the contractual rights of one party alone.
(c) that the award was contrary to law and opposed to the public
policy of India;
(d) that the Arbitral Tribunal had relied on disputed documents
(particularly in the RD series) without giving the respondent an
opportunity to cross-examine the appellants thereon;
(e) that the Arbitral Tribunal had no power to grant an order of
permanent and mandatory injunction;
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COMAP No. 314 of 2025
(f) that the award was devoid of findings in respect of Point of
Determination No. 21;
(g) that the award of compensation of Rs. 15,00,000/- was
without basis; and
(h) that Arbitral Tribunal’s approach in conducting the
proceedings was arbitrary and capricious.
IMPUGNED ORDER
26. The Commercial Court, vide its order dated 03.06.2023,
granted an ex-parte stay of the arbitral award, subject to the
respondent depositing a sum of ` 15,00,000/- (Rupees Fifteen Lakhs
only) within two months. Thereafter, the appellants entered
appearance and contested the proceedings before the Commercial
Court.
27. The Commercial Court, by the impugned order dated
12.03.2025, allowed Com.A.P.No.66 of 2023 and set aside the
impugned award. The Commercial Court framed the following point
for consideration:
“Whether, the present petition deserves to be allowed
and the impugned award dtd: 21.03.2023 passed by
the Learned Sole Arbitrator in A.C. No. 329/2022
requires to be set aside under Sec. 34 of Arbitration
and Conciliation Act?”
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COMAP No. 314 of 2025
The Commercial Court answered the aforesaid question in the
“affirmative”.
28. The Commercial Court set out the provisions of Section 34(2)
of the A&C Act and the limited scope of interference with an arbitral
award under Section 34 of the A&C Act. The Commercial Court
noted that although the Arbitral Tribunal had, taken up Points of
Determination Nos.15 and 21 for consideration together, no specific
finding was rendered in respect of Point of Determination No.21,
which pertained to the respondent’s alleged misuse of confidential
information of Alabama LLP and its related entities, by engaging
with Zyeta, a direct competitor of Alabama LLP.
29. The Commercial Court further observed that certain disputed
documents, particularly Exhibits RD13 and RD19, had been relied
upon by the Arbitral Tribunal without the appellants having
examined any witnesses for the same, and without the respondent
being afforded an opportunity to cross-examine the appellants on
the said disputed documents. The learned Commercial Court also
observed that while answering Point of Determination No. 25, the
Arbitral Tribunal had held that the amount claimed by the appellants
as tentative profit was “speculative” and yet proceeded to award a
sum of ` 15,00,000/- as compensation. In relation to Point of
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COMAP No. 314 of 2025
Determination No.26, the Arbitral Tribunal held that the appellants
had failed to establish their claim, as there was no information from
Zyeta regarding the number of projects obtained, despite the
information provided by the respondent.
30. The operative reasoning of the Commercial Court is set out
below:
“12….In my opinion not giving any reasons and
findings for point No. 21, relying on disputed
documents, not giving an opportunity to the petitioner
to cross-examine respondents on these disputed
documents, though holding that respondents failed to
prove point No. 26, not giving satisfactory reasons and
the basis for awarding compensation of Rs.
15,00,000/- are nothing but patent illegality which go
to the root of the case.”
31. The Commercial Court further observed as under:
“12….The very observation made by the Arbitration
Tribunal that, the respondent has not proved what was
the profit earned by this petitioner when she involved
with Zyeta group clearly shows that, respondent failed
to prove that, he is entitled for compensation from
respondent. When such being the case awarding
compensation of Rs. 15,00,000/- seems to be not
proper as it is not within the purview of either main
LLP agreement or supplementary LLP agreement.
Coming to the question of awarding interest,
admittedly there is no finding in the award as to on
what basis such interest was awarded and also there
is no reasons for directing the petitioner to pay and
bare the respondents cost of these proceedings.
Further, there is no finding in the award as to why the
tribunal was inclined to grant relief ‘D’ (i to iv) has to
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COMAP No. 314 of 2025
be granted. Further, the tribunal itself has observed
that, respondent has failed to prove what was the
confidential information which the petitioner illegally
provided to Zyeta group of companies. In my opinion
all the above facts clearly indicates that, the award
passed by the Arbitration Tribunal deserves to be set
aside.”
32. Accordingly, the Commercial Court, by the impugned order,
set aside the arbitral award dated 21.03.2023 in its entirety on the
ground of ‘patent illegality’.
REASONS AND CONCLUSION
33. It is apparent from the above that the learned Commercial
Court has set aside the impugned award on essentially three
grounds. First, that the Arbitral Tribunal had not given any findings
in regard to point No.21 framed for consideration. Second, that the
Arbitral Tribunal had relied on the disputed documents and had not
given an opportunity to the respondent to cross-examine the
appellants on these documents. Third, that there was no basis for
`
awarding compensation of 15,00,000/-.
34. The learned Commercial Court also faulted the Arbitral
Tribunal for granting certain injunctive reliefs without any findings in
that regard.
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COMAP No. 314 of 2025
35. Mr. C.K.Nanda Kumar, learned Senior Counsel appearing for
the appellants contended that the learned Commercial Court had
undertaken an examination on merits, which was beyond the scope
of examination under Section 34 of the A & C Act. He also
submitted that the observation that the Arbitral Tribunal had not
returned any finding as to point No.21 for consideration is
erroneous, as the Arbitral Tribunal had considered the said point
along with point No.15. He further submitted that the entire
impugned award could not be set aside solely on the ground that
the Arbitral Tribunal had not found any material or any evidence for
misuse of confidential information. He submitted that there is ample
material on record to establish that the respondent had misused the
confidential information relating to Alabama LLP. In response to a
pointed query from the Court regarding the confidential information
used by the respondent, he submitted that the respondent had
shared financial information with M/s. Gnanoba & Bhat.
36. We may note that the Arbitral Tribunal rejected the
respondent's claims on the ground that she failed to establish her
case. Insofar as the counter claims are concerned, the Arbitral
`
Tribunal had awarded a sum of 15,00,000/- along with interest and
costs in favour of the appellants. Additionally, the Arbitral Tribunal
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COMAP No. 314 of 2025
had restrained the respondent from using confidential information
obtained from the appellants for the benefit of any competitor and
from breaching the terms of the main LLP Agreement.
37. The appellants had made a counter claim of ` 38.50 lakhs on
the ground that the respondent was employed/associated with Zyeta
while she was a partner of Alabama LLP and thus was liable to
account for the profits/remuneration received. They based the said
claim on the annual remuneration of ` 60,00,000/- (Rupees Sixty
`
Lakhs only) – subsequently increased to 66,00,000/-(Rupees Sixty-
six Lakhs only) which was receivable by the respondent from AIPL.
Concededly, there is no material on record to establish that the
respondent had made any profit from her association with the Zyeta
group of companies during the period from November, 2021 to May,
2022. The Arbitral Tribunal found that the said claim was “clearly
speculative”.
38. The appellants had contended that the respondent had
benefited by the misuse of confidential information. The Arbitral
Tribunal did not accept this contention as well. Notwithstanding
these findings, the Arbitral Tribunal held that the appellants had
established that they were entitled to a reasonable amount of
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COMAP No. 314 of 2025
compensation and awarded a sum of ` 15,00,000/-. Clearly, we find
no basis for the award in question. We find no material or evidence
to award the said compensation.
39. We may also note that AIPL had also made a counterclaim of
`
5,00,00,000/- as damages on the ground that sensitive business
information had been misused by the respondent to obtain projects
for a competitor. The Arbitral Tribunal rejected this claim on the
ground that there was no material to identify the projects that were
secured by the respondent by using any confidential information
relating to the appellants. In view of the aforesaid, we concur with
the view that the award of compensation of ` 15,00,000/- is vitiated
by patent illegality.
40. Mr. C.K.Nanda Kumar did not seriously contest that the award
of compensation was unsustainable. He, however, stoutly
contended that the impugned award could not be set aside in
entirety on the aforesaid ground. He contended that the impugned
award was liable to be set aside only to the extent of awarding
compensation in favour of the appellants. He contended that the
impugned award, to the extent that it rejected the claims made by
the respondent, ought to have been sustained.
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COMAP No. 314 of 2025
41. It is now well settled that the court has an inherent power to
set aside an invalid portion of an Arbitral Award while retaining the
portion which is found to be valid.
1
42. In J G Engineers Pvt. Ltd. v. Union of India , the Supreme
Court had observed this under:
"25. It is now well settled that if an award deals with and
decides several claims separately and distinctly, even if the
court finds that the award in regard to some items is bad,
the court will segregate the award on items which did not
suffer from any infirmity and uphold the award to that extent.
As the award on Items 2, 4, 6, 7, 8 and 9 was upheld by the
civil court and as the High Court in appeal did not find any
infirmity in regard to the award on those claims, the
judgment of the High Court setting aside the award in
regard to Claims 2, 4, 6, 7, 8 and 9 of the appellant, cannot
be sustained. The judgment to that extent is liable to be set
aside and the award has to be upheld in regard to Claims 2,
4, 6, 7, 8 and 9."
43. In Gayatri Balasamy v. M/s. ISG Novasoft Technologies
2
Limited , Mr Justice Sanjiv Khanna, CJI (as he was then), speaking
for the majority observed as under:
"33. We hold that the power conferred under the proviso to
Section 34(2)(a)(iv) is clarificatory in nature. The authority to
sever the “invalid” portion of an arbitral award from the
“valid” portion, while remaining within the narrow confines of
Section 34, is inherent in the court’s jurisdiction when
setting aside an award."
1
(2011) 5 SCC 758
2
(2025) 7 SCC 1
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COMAP No. 314 of 2025
44. However, the Court also added a caveat that partial setting
aside of the award may not be feasible when valid and invalid
portions are legally and practically inseparable.
45. In the present case, the Arbitral Tribunal has found no
material to establish that the respondent had misused any
confidential information belonging to the appellants to secure any
projects or contracts for the Zyeta Group of Companies. The
information shared by the respondent with the consulting firm M/s
Gnanoba & Bhat, was for the purpose of valuation of her share in
Alabama LLP. The same cannot be accepted as use of confidential
information for the benefit of any competitor. The respondent had
shared some information for her purpose. The same cannot be
construed as carrying on any activity or the business of Alabama
LLP for fraudulent purpose. The finding that information was
confidential is also disputed. According to the respondent the
information was not such, which was not otherwise ascertainable. In
the absence of any finding as to the nature of the confidential
information, the manner of its use, and the benefit derived from it,
no compensation could have been awarded on the said count by the
learned Arbitral Tribunal. It had also rightly rejected AIPL's claim for
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COMAP No. 314 of 2025
a sum of ` 5,00,00,000/- (Rupees Five Crores Only) on the said
ground.
46. We also find no infirmity with the conclusion of the learned
Commercial Court that the injunctive reliefs as granted are without
any findings to the said effect. Thus, the impugned award in favour
of the appellants had been rightly set aside by the learned
Commercial Court.
47. The next question that follows is whether the impugned
award, to the extent it rejects the claim made by the respondent, is
required to be sustained.
48. As noted above, the respondent had challenged her expulsion
from the appellant firm and also sought that the amendments to the
nd rd
main LLP agreement made by the 2 and 3 supplementary
agreements be set aside. The respondent sought the appointment
of an independent valuer to value her share in the appellant LLP.
She also claimed ` 4,88,88,000/- towards the value of her share by
way of exit valuation, and ` 1,50,00,000/- as damages. As rightly
argued on behalf of the appellants, the dispute between the parties
broadly centres around her expulsion from appellant No. 1's firm by
a notice.
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49. The respondent was expelled from Alabama LLP by a notice
dated 26.05.2022 on several grounds, which were set out in the
show cause notice dated 18.05.2022.
50. Broadly, the allegations against the respondent were that she
had engaged with Alabama’s competitor; she had not contributed to
the capital of appellant No.1's LLP; she had not devoted full time to
the affairs of appellant No.1; and there was a breach of other
clauses of the main LLP agreement.
51. The appellants relied on clause 13 of the main LLP
nd
agreement as amended by the 2 supplementary agreement. The
unamended clause (13) of the main LLP agreement is set out
below.
"13.0. EXPULSION OF PARTNER
13.1. No majority of partners can expel any partner except
in the situation where any partner has been found
guilty of carrying of activity/business of the LLP with
fraudulent purpose. Such expulsion shall be only
after serving a show cause notice in writing on that
partner giving 7 days time for his response; and in
that event the partner expelled shall be entitled to the
benefits of a retiring partner and be liable to the same
obligations applicable to a retiring partner in
accordance with the provisions of this agreement in
that behalf. "
52. As is apparent from the above, a partner could be expelled by
the majority of partners of Alabama LLP, where such partner was
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COMAP No. 314 of 2025
found guilty of carrying on the activity/business of the LLP with a
fraudulent purpose.
53. Thus, one of the questions to be considered is whether the
appellants have established that the respondent was guilty of
carrying on activity or business of the Alabama LLP with a
fraudulent purpose.
54. The notice of expulsion also stated that the respondent was
expelled for the reasons stated in the show cause notice, including
sharing of confidential and proprietary information of the appellant
No.1 that was available with her. The show cause notice, amongst
other allegations, also alleges that the respondent had undertaken
fraudulent activities and the cheating of Alabama LLP and its
partners, inter alia, by using confidential information for the benefit
of the competitor and failing to contribute to the LLP when she was
called upon to do so.
55. Thus, the respondent was expelled from Alabama LLP, inter
alia, on the aforesaid allegation. As noted above, the Arbitral
Tribunal had not cited any instance of confidential information being
passed on to a competitor for cheating Alabama LLP as alleged.
The Arbitral Tribunal has not accepted the said contention. The
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COMAP No. 314 of 2025
respondent’s claims included her challenge to her expulsion from
Alabama LLP, which, as noted above, was, inter alia , on the ground
that she had used Alabama LLP’s confidential information to benefit
competitors and cheat Alabama LLP and its partners. Thus, it would
not be apposite to conclude that the claims were not inextricably
connected or linked with the issues involved in the counter-claims,
which were partly allowed. In the present case there is an overlap
of the disputes.
56. The amendment to the main LLP agreement by virtue of the
nd rd
2 and 3 supplementary agreements is also central to the dispute.
nd
57. By virtue of the 2 Supplementary Agreement, clause 13 of
the main LLP agreement was amended. The amended clause 13 of
the main LLP agreement is set out below:
"13.0. EXPULSION OF PARTNER
13.1. No majority of partners can expel any partner except
in the situations;
(a) where any partner fails to pay his/her contribution
towards the capital of the LLP, and
(b) where any partner has been found guilty of carrying of
activity/business of the LLP with fraudulent purpose.
13.2. Such expulsion shall be only after serving a show
cause notice in writing on that partner and giving 7
days time for his/her satisfactory response; and in
that event the expelled partner shall be provided with
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COMAP No. 314 of 2025
any benefits as determined and decided by the
majority of the remaining partners."
rd
58. By virtue of 3 supplementary agreement, the capital
structure of Alabama LLP as specified in clause (6) of the main LLP
nd rd
agreement was also amended. The 2 and 3 Supplementary
Agreements were not signed by the respondent, clearly she had not
consented to it. In view of the above, the respondent had claimed
that the amendments to the main LLP agreement are unlawful.
However, the Arbitral Tribunal rejected the respondent's challenge.
The Arbitral Tribunal's reasoning for the same is set out below:
"92. Re. Point no.7 & Point no.8:
7. Whether the claimant proves that the second
Supplementary LLP Agreement, which included an
amendment to Clause 13 of the main LLP Agreement,
which contemplated an expulsion of a partner, when
there is default in making their capital contribution to the
firm, was deliberately aimed at her and that it was also,
Per se, unlawful?
8. Does the claimant prove that the resolutions passed at
the meeting of the partners of respondent No.1 on
25.11.2020, was unlawful and void ab initio?
It is seen that the sequence of events pursuant to the
amendment of Clause 13 of the LLP Agreement, which
contemplated as above, would throw some light on the
above points. Immediately after the above clause was
brought into force, the Claimant and Respondent no.3
have paid their respective capital contribution of Rs.1.50
lakh, that was overdue-at once. (Refer Exhibit CD- 14).
This would lead to a presumption that the Claimant was
going by the amended clause. However, she has refuted
the validity of the resolution passed as regards the
above amendment. Further, she has refused to affix her
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COMAP No. 314 of 2025
signature to the Second Supplementary LLP
Agreement.
93. But then again, from the terms of the LLP Agreement,
any alteration or amendment to the main LLP
Agreement can only be made by a majority of the
Partners. In the present instance, when the majority of
the partners have consented at the meeting. Claimant
had not participated at the meeting, but - even if she had
and dissented to the amendment, it would have been
two against one - leading to the same result.
94. The above procedure is also seen to be in accordance
with the law and procedure prescribed under the Limited
Liability Partnership Act, 2008, (Refer Clause 8 of the
First Schedule to the Act).
The suspicion of the Claimant that the above
amendment was deliberately aimed at her, cannot be
accepted, as the amended clause would apply to all
partners and not merely the Claimant. The Claimant has
also failed to demonstrate as to how such an
amendment was unlawful.
In the result this Tribunal holds that it is proved by the
Respondents, that the Second Supplementary LLP
Agreement that included an amendment to Clause 13 of
the LLP Agreement was validly made and incorporated
and not with any deliberate design to oust the Claimant.
Points no. 7 & 8 are held not proved by the Claimant.
Point no.8 is held in the negative, in view of the finding
on Point no. 7."
59. It is clear from the above that the Arbitral Tribunal proceeded
on the basis that the main LLP agreement and the procedure
prescribed in accordance with Clause 8 of the First Schedule to the
Limited Liability Partnership Act, 2008, allowed the majority partners
of Alabama LLP to amend the main LLP Agreement. However,
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COMAP No. 314 of 2025
there is no clause in the main LLP agreement to the effect that the
majority partners are entitled to amend the main LLP agreement.
60. We may also refer to Clause 8 of the First Schedule of the
LLP Act, 2008, which is set out below.
"THE FIRST SCHEDULE
[See section 23(4)]
PROVISIONS REGARDING MATTERS RELATING TO
MUTUAL RIGHTS AND DUTIES OF PARTNERS AND
LIMITED LIABILITY PARTNERSHIP AND ITS
PARTNERS APPLICABLE IN THE ABSENCE OF ANY
AGREEMENT ON SUCH MATTERS
1.
2.
3.
4.
5.
6.
7.
8. Any matter or issue relating to the limited liability
partnership shall be decided by a resolution passed by a
majority in number of the partners, and for this purpose,
each partner shall have one vote. However, no change
may be made in the nature of business of the limited
liability partnership without the consent of all the
partners."
61. By virtue of the said clause, all issues relating to the LLP may
be decided by the majority of partners. However, this clause cannot
be considered to empower the majority partners to amend the main
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COMAP No. 314 of 2025
terms of the partnership agreement. While the majority of partners
are entitled to make all decisions regarding the affairs of the firm, it
is difficult to accept that the majority can, by virtue of such a
resolution, alter or amend the terms of the LLP agreement, which, in
effect, is the charter of the entity.
62. The Arbitral Tribunal reasoned that the majority partners were
entitled to call for further capital contribution. Therefore, even if the
resolution to the said effect was passed without the presence or
notice to the respondent, the same may not be relevant. However,
rd
the 3 Supplementary Agreement amended the main LLP
agreement not only with regard to the capital contribution, but also
clause 6, which specified the ratio in which the profits and losses of
Alabama LLP were to be shared between the partners.
63. The reasoning of the Arbitral Tribunal that a majority of
partners are entitled to amend the terms of the LLP agreement
(partnership deed) to provide for the additional grounds for expelling
a partner or change the ratio in which profits and losses are to be
shared, cannot be sustained.
64. The respondent had also sought the value of her share in
Alabama LLP terming it as exit valuation. However, the Arbitral
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COMAP No. 314 of 2025
Tribunal rejected the same on the ground that she had failed to
establish that her expulsion from the partnership was illegal.
65. A plain reading of unamended clause 13 of the main LLP
agreement indicates that even if a partner is expelled, she is entitled
to the same benefits as a retiring partner. Clause 11 of the main
LLP agreement provides for the takeover of a retiring partner's
share. The said clause is set out below:
" 11.0 RESIGNATION OR RETIREMENT OF PARTNERS
11.1 If a Partner/s wishes to resign or withdraw from
the LLP, the retiring partner or withdrawing partner/s
shall give a notice in writing of not less than 30 days to
all partners of the LLP offering his/her share to the
existing partners and the existing partners shall have
the right of first refusal. The existing partners shall take
the share of the retiring or withdrawing partner in the
proportion of the existing profit & loss sharing ratio, if
the existing partners within 30 days after the receipt of
notice from the retiring or withdrawing partner/s
offering his/her share to be purchased fail to buy the
share, then the retiring or withdrawing partner/shall
have the liberty to sell his/her share to any person/s.
However, for the first 3 years no partner shall resign or
quit except for non performance."
66. Thus, irrespective of whether a partner was expelled from
Alabama LLP or had retired, she would be entitled to receive the
value of her share in the said firm.
67. It was the respondent's case that the shares of AIPL are
valuable assets of Alabama LLP, and that they must be valued to
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determine the value of her share in Alabama LLP. Thus, the value of
the respondent's share in Alabama LLP would be required to be
determined on the basis of well known principles of valuation of
shares.
68. The Arbitral Tribunal had rejected the respondent's claim for
exit valuation on the ground that the respondent had failed to prove
that her expulsion from Alabama LLP was illegal.
69. As noted above, the partner expelled from Alabama LLP
would also be entitled to the value of her share. The main LLP
agreement does not provide for the forfeiture of the value of share of
an expelled partner. The principal dispute in this regard appears to
be whether the market value of AIPL shares is required to be taken
into account for valuing the respondent's share in the LLP
agreement. There appears to be no discussion in the impugned
award in this regard. The only reason set out by the Arbitral
Tribunal to reject the claim reads as "when the LLP agreement or
the law do not provide for an exit valuation, the claimant is
3
disentitled to any such exercise or claim thereon" .
3
Paragraph 111 of the impugned award.
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70. The effect of not valuing the assets of the firm for determining
the value of the share of an exiting partner would in effect deprive
the exiting partner of the unrealised accretion in the value of the
assets of the firm. The learned counsel appearing for the appellants
could not point out any clause in the main LLP agreement which
confined the value of the share of exiting partner to be computed on
the historical value of the assets as recorded in the books of
accounts.
71. Although the learned Commercial Court had not set aside the
impugned award on the grounds as stated above, nonetheless the
impugned award is also erroneous for the aforesaid reasons.
72. Learned Commercial Court had also faulted the Arbitral
Tribunal for relying on disputed documents without affording the
respondent an opportunity to cross-examine the witnesses.
Although there is material on record which could sustain some of
the findings of the Arbitral Tribunal, it is not disputed that the Arbitral
Tribunal had relied on certain disputed documents which were
separately marked and the question as to their veracity was left to
be determined. However, the appellants had not produced any
witness for cross-examination in regard to the veracity of the said
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documents. By virtue of Section 19 of the A&C Act, the provisions
of the Evidence Act, 1872 and the Code of Civil Procedure, 1908,
are not applicable, but, undisputedly, the procedure adopted by the
arbitral tribunal is required to be fair and afford equal treatment to
the parties. In the present case, the respondent had tendered her
evidence and was cross-examined. However, even though some of
the disputed documents produced by the appellants were relied
upon by the Arbitral Tribunal, the respondent was not afforded any
opportunity to cross-examine the witnesses. In this view, we find no
infirmity with the decision of the learned Commercial Court in
faulting the impugned award on the aforesaid ground.
73. In Sepco Electric Power Construction Corporation v. GMR
4
Kamalanga Energy Limited , the Supreme Court found that the
arbitral award suffered from the vice of discriminatory treatment of
parties and held that such circumstances did not warrant a
severance of the arbitral award.
74. Having stated the above, we may also note that some of the
findings of the Arbitral Tribunal cannot be faulted. The conclusion
that the respondent was associated or engaged with Zyeta, cannot
4
(2026) 2 SCC 542
- 45 -
COMAP No. 314 of 2025
be faulted. The respondent had declined to respond to some of the
questions raised during her cross-examination. Thus, there is no
infirmity with the Arbitral Tribunal drawing adverse inference on the
said basis. However, the respondent had not been expelled solely
for the reason of her being associated with Zyeta. Her expulsion
was also based on the allegations that she had shared confidential
information for the benefit of the competitors and had also failed to
make a contribution to the capital. It may not be apposite to
separate these grounds and assume that her expulsion can be
sustained solely on the ground that she was associated or engaged
in some manner with Zyeta.
75. In view of the above, we do not consider it apposite to
interfere with the conclusion of the learned Commercial Court in
setting aside the impugned award in entirety.
76. The appeal is, accordingly, dismissed.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(C.M. POONACHA)
JUDGE
KMV