Majority partners cannot unilaterally amend LLP Agreements to create new expulsion grounds or alter profit-sharing ratios.

Following the conversion of a firm into an LLP, a 1st Supplementary Agreement inducted the Respondent as a 15% partner

Appellants executed 2nd and 3rd Supplementary Agreements (without Respondent’s consent), which amended the expulsion clause to include "failure to contribute capital" and diluted Respondent’s share to 0.28%

On 26.05.2022, the Appellants expelled the Respondent, alleging engagement with a competitor (Zyeta) and misuse of confidential information

An Arbitral Tribunal rejected the Respondent’s claims for reinstatement and exit valuation but awarded the Appellants ₹15,00,000 as compensation for "breach of contract" despite calling the specific profit claim "speculative"

The Commercial Court set aside the award under Section 34 of the Act. The Appellants then filed this appeal under Section 37.

1. Whether the Arbitral Award was vitiated by 'patent illegality' due to lack of evidence for the awarded compensation and reliance on disputed documents without cross-examination?

2. Whether the majority partners have the legal authority to unilaterally amend the LLP Agreement regarding profit-sharing ratios and expulsion grounds in the absence of a specific contractual provision?

3. Whether the Arbitral Award can be partially set aside or must be set aside in its entirety given the overlapping nature of the claims?

The Court applied Section 34(2A) of the Arbitration and Conciliation Act, 1996, which permits setting aside an award for "patent illegality" appearing on the face of the award

The court also interpreted Section 23 and Clause 8 of the First Schedule of the Limited Liability Partnership Act, 2008, noting that while the majority can decide routine "matters or issues," they cannot unilaterally alter the core "charter" or partnership deed (LLP Agreement) without unanimous consent unless specifically authorized by the agreement

It relied on Gayatri Balasamy v. M/s. ISG Novasoft Technologies Limited, establishing the court’s inherent power to sever and set aside "invalid" portions of an award unless the portions are legally and practically inseparable

The Court observed that the Arbitral Tribunal committed a patent illegality by awarding ₹15,00,000 as compensation while simultaneously acknowledging that the claim for damages was "speculative" and that no misuse of confidential information was proven

On the validity of the LLP amendments, the Court held that Clause 8 of the LLP Act's First Schedule does not empower a majority to unilaterally change profit-sharing ratios or add expulsion grounds; such fundamental changes require the consent of all partners

The Tribunal's reliance on "disputed documents" without allowing cross-examination violated the principle of equal treatment under Section 18 and 19 of the A&C Act

The Court reasoned that since the grounds for expulsion and the counter-claims for damages were "inextricably connected," partial setting aside was not feasible

It further held that the unilateral 2nd and 3rd Supplementary Agreements were invalid as they lacked the Respondent's consent

Consequently, even findings related to the Respondent's association with a competitor could not save the award, as the expulsion was based on multiple grounds—including the invalid amendments—making the valid and invalid portions inseparable

The High Court dismissed the appeal and upheld the Commercial Court's order setting aside the Arbitral Award in its entirety