Bombay High Court
Kartik Radia vs Bdo India Llp And Anr on 4 March, 2025
2025:BHC-OS:3441
CARAP-31-2022 -F.docx
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
Digitally
signed by
SHRADDHA
SHRADDHA KAMLESH
COMM. ARBITRATION APPLICATION NO. 31 OF 2022
KAMLESH TALEKAR
TALEKAR Date:
2025.03.04
14:33:54
+0530 KARTIK RADIA ...Applicant
Versus
M/s. BDO INDIA LLP AND ANR. ...Respondents
Mr. Amrut Joshi a/w. Mr. Prashant Trivedi and Petal Chandok i/b
Khushboo Jain, for Applicant.
Mr. Gaurav Joshi, Senior Advocate a/w. Mr. Jatin Pore, Sreeram VG,
Karan Jain i/b DSK Legal, for Respondent No. 1.
Mr. Mayur Khandeparkar a/w.Mr. Jatin Pore, Sreeram VG, Karan Jain
i/b DSK Legal, for Respondent No. 2.
CORAM : SOMASEKHAR SUNDARESAN, J.
Reserved on :January 28, 2025
Pronounced on : March 4, 2025
JUDGEMENT:
1. Whether disputes between partners of a limited liability partnership
(“LLP”) and the LLP can at all be covered by the arbitration agreement
contained in a limited liability partnership agreement (” LLP Agreement”) to
which the LLP is not a signatory, is the short question that has arisen in this
Application filed under Section 11 of the Arbitration and Conciliation Act,
1996 (“Arbitration Act“).
Page 1 of 17
March 4, 2025
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
2. For the reasons set out below, I reject the absolute proposition
canvassed by the Respondents – that because an LLP is not a signatory to the
LLP Agreement, it can never be a party to proceedings initiated under the
arbitration clause in such agreement.
The Parties:
3. The Applicant, Mr. Kartik Radia (“Radia”) is a former partner of BDO
India LLP, which is Respondent No. 1 (” BDO”). Mr. Milind Kothari, the
Managing Partner of the LLP is Respondent No. 2 (” Kothari”). Both
Respondents present trenchant objection to arbitration initiated under the
LLP Agreement dated August 1, 2014, on the premise that BDO is not a
signatory to the LLP Agreement.
Issue for Consideration:
4. Radia has been expelled from the LLP. Radia’s grievances relate to his
manner of treatment by the Respondents – expulsion from BDO; and the
alleged high-handed behaviour and misconduct by Kothari, the Managing
Partner of BDO, in effecting the expulsion. Radia seeks to initiate arbitration,
which has been repelled by the Respondents. Hence this Application.
5. The Respondents’ opposition is in marginally varying tones. Mr.
Gaurav Joshi, Learned Senior Counsel on behalf of BDO, asserts that Radia’s
Page 2 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
desire is to initiate arbitration proceedings against BDO, which is not a party
to the arbitration agreement. Mr. Mayur Khandeparkar, Learned Counsel on
behalf of Kothari, asserts that Radia’s allegations and expressions of
grievances are all squarely personal against Kothari. The invocation notice is
issued to Kothari, and therefore, they both submit, the invocation too is not
against BDO.
6. Both the Counsel seek to draw the Section 11 Court into this issue with
a view to have this Application dismissed. Mr. Joshi seeks to draw a clear
distinction between: (i) disputes among the partners of the LLP; and (ii)
disputes between partners and the LLP. According to him, the jurisdiction of
the arbitral tribunal created by the arbitration clause contained in the LLP
Agreement can never extend to disputes that a partner may have with the
LLP.
Arbitration Agreement:
7. Clause 23 of the LLP Agreement, which contains the arbitration
agreement, is extracted below:
23.1 Any disputes, differences, claims and questions whatsoever
which arise during the continuance of the LLP or afterwards,
between the Partners or their respective representatives or between
any Partner or Partners and the representatives of any other
Partners relating to this Agreement or the construction or
Page 3 of 17
March 4, 2025
Shraddha::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docxapplication thereof or any clause or thing herein contained or any
account, valuation or division of assets, debts or liabilities to be
made hereunder or as to any act, deed or omission of any Partner or
as to any other matter in any way relating to the Business or affairs
of the LLP or the rights, duties or liabilities of any of the Parties
under this Agreement, shall in the first instance, be attempted to be
resolved amicably between the disputing parties.
23.2 In the event the parties to the dispute are not able to resolve
the same amicably within [30] Business Days from the date the
dispute arose, the same shall be referred to the Executive Board to be
decided in accordance with this Agreement.
23.3 If the Executive Board cannot resolve the dispute within 60
Business Days from the date such dispute was referred to it, the same
shall be referred to arbitration in accordance with and subject to the
provisions of the Arbitration and Conciliation Act, 1996 or any
statutory modification or re-enactment thereof for the time being in
force. One arbitrator each shall be appointed by the Partners in
dispute, and the third arbitrator who shall be the chairperson, shall
be selected by the two party-appointed arbitrators. The arbitrators
shall give a reasoned decision or award, including as to the costs of
the arbitration, which shall be final and binding on the Parties.
[Emphasis Supplied]
8. According to Mr. Joshi, Clause 23.1 is clear in its terms – it only covers
disputes between partners, and in relation to the subjects set out in it. He
would submit that the disputes at hand between Radia and BDO cannot be a
dispute among partners of BDO. It is the LLP that has expelled Radia and
therefore the dispute is between Radia and BDO. Therefore, he would submit,
Page 4 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
this Section 11 Application is not maintainable since disputes between Radia
and BDO are not arbitrable.
9. In my opinion, such an argument is flawed. 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. It
would also include any matter in any way relating to the business and affairs
of BDO. It also includes interpretation of any rights, duties or liabilities of
any partner of BDO. This would necessarily entail BDO being a necessary
party in a dispute such as the one involved in the matter at hand.
Statutory Scheme – LLP Act:
10. Indian law governing privity of non-signatories to arbitration
agreements is well developed now. The law declared in Cox and Kings Ltd.
Vs. SAP India Pvt. Ltd. – (2024) 4 SCC 1 is not being extracted here, to avoid
prolixity. Suffice it to say, that the facts at hand do not even need one to look
for any inter-connected agreements or multiple agreements relating to the
same transaction. .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
Page 5 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
Agreement. The conduct of the affairs of the LLP is what the partners agree
upon in an LLP Agreement. An LLP is a body corporate. To incorporate an
LLP, partners need to execute an incorporation document. It is a charter
document akin to the Memorandum of Association in the case of companies.
For an LLP to operate, its partners need to execute an LLP Agreement, which
is what gives agency to the partners to operate the LLP. It is a charter
document too, akin to the Articles of Association in the case of companies.
The existence of an LLP Agreement is non-optional and a requirement of law.
If partners do not have an LLP Agreement, or where the LLP Agreement is
silent on any matter, the contents of the First Schedule of the Limited
Liability Partnership Act, 2008 (“LLP Act“) would be deemed to be the LLP
Agreement governing the LLP. The First Schedule to the LLP Act which is a
deemed LLP Agreement is akin to the statutory articles contained in Table A
in the Companies Act, 1956 and in Table F in the Companies Act, 2013.
11. Arguing that the LLP is a “third party” to the LLP Agreement is much
like arguing that a company is a third party to its own Articles of Association.
A company is duty-bound to act in accordance with the Articles of
Association. So is an LLP duty-bound to act in accordance with the LLP
Agreement. The body corporate is the very cause for the existence of such an
agreement. To argue that there is no privity to the very document governing
Page 6 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
the body corporate, and that too in a Section 11 Court, is hardly a sustainable
argument. Radia is the dominus litus and it is for him to choose who to make
parties in his claim.
12. Whether a non-signatory has accorded implicit consent to the
arbitration agreement is a matter to be inferred through the acts, conduct and
circumstances including relationship between the contracting parties, the
commonality of subject matter and the involvement of such party in the
performance of the very contract containing the arbitration clause. The very
operation of the LLP during its existence is the common commercial
objective of the parties to the LLP Agreement. Therefore, I have no hesitation
in holding that there is no merit at all in the argument that despite the LLP
being the very subject matter of the LLP Agreement, the LLP itself is
extraneous to the LLP Agreement. This issue ought not to have been a matter
that detained my 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 need for me to discuss this
issue has arisen because of the stance of the Respondents that the arbitration
agreement insofar as it relates to the LLP does not exist. The scope of my
review for a Section 11 Application is to examine the existence of an
arbitration agreement, and owing to the trenchant objection of the
Respondents, it became necessary to rule on this issue.
Page 7 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
13. Without meaning to put too fine a point, the submission that the LLP is
an alien to the LLP Agreement is totally untenable as would be seen from the
very scheme of the LLP Act. That an LLP is an entity that enjoys rights
against, and owes obligations to its partners, is expressly set out in Paragraph
4(ii) of the Statement of Objects and Reasons to the LLP Act. Section 2(1)(o)
of the LLP Act, which defines “limited liability partnership agreement” makes
it clear that the subject matter of the LLP Agreement is the determination of
the mutual rights and duties of the partners, and their rights and duties in
relation to the LLP. In terms of Section 2(1)(q) of the LLP Act, which defines
“partner”, the very entry into and exit from an LLP is meant to be governed
by the LLP Agreement. The same is the position emerging from Section 7(2)
(ii) of the LLP Act; Section 22 of the LLP Act (governing entry of new
partners into an LLP); and Section 24 of the LLP Act (governing cessation of
a partner’s role in the LLP).
14. If Mr. Joshi and Mr. Khandeparkar are right, in every arbitration
relating to an LLP among its partners, the LLP itself which would be at the
core of the dispute would have to be kept out of the proceedings. Such an
approach would render the arbitration nugatory and ineffective. I am afraid
the contentions of the Respondents is akin to the approach they would adopt
in their day-to-day professional work (BDO’s practice area includes the field
of advisory services relating to fiscal statute and accounting). The regulatory
Page 8 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
framework of the LLP Act and its interplay with the Arbitration Act, requires
a diametrically opposite approach of adopting purposive interpretation.
Where two views are possible, the view that furthers the objective of the
legislation must be adopted. Under the LLP Act, the LLP Agreement is a
mandatory statutory charter document governing the very LLP that the
Respondents would wish me to hold as being a non-signatory and extraneous
“third party”. Under the Arbitration Act, arbitration is meant to be a speedy,
effective and alternate mechanism for dispute resolution. Thanks to the
approach adopted by the Respondents, a dispute that entailed an invocation
notice as long ago as October 20, 2020 is still languishing in the Section 11
Court. Besides, it is trite law that whether a party is a necessary party or a
proper party is really for the Arbitral Tribunal to decide while the scope of
jurisdiction of the Section 11 Court is to examine the prima facie existence of
the arbitration agreement, and the prima facie logic in the joinder of parties
proposed by the Applicant.
Section 23 of LLP Act:
15. Mr. Joshi essentially relies on Section 23 of the LLP Act, which reads
thus:
23. Relationship of partners.–
(1) Save as otherwise provided by this Act, the mutual rights and duties of
the partners of a limited liability partnership, and the mutual rights and
Page 9 of 17
March 4, 2025
Shraddha::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docxduties of a limited liability partnership and its partners, shall be governed by
the limited liability partnership agreement between the partners, or between
the limited liability partnership and its partners.
(2) The limited liability partnership agreement and any changes, if any,
made therein shall be filed with the Registrar in such form, manner and
accompanied by such fees as may be prescribed.
(3) An agreement in writing made before the incorporation of a limited
liability partnership between the persons who subscribe their names to the
incorporation document may impose obligations on the limited liability
partnership, provided such agreement is ratified by all the partners after the
incorporation of the limited liability partnership.
(4) In the absence of agreement as to any matter, the mutual rights and
duties of the partners and the mutual rights and duties of the limited liability
partnership and the partners shall be determined by the provisions relating to
that matter as are set-out in the First Schedule.
[Emphasis Supplied]
16. The very subject matter of Section 23 is the relationship of the
partners. Mr. Joshi’s submission is that every LLP has two options – of
having an agreement only among the partners, and of having an agreement
between the LLP and its partners. According to him, if an LLP has chosen the
former i.e. of executing an LLP Agreement only among the partners, then
there is a conscious choice of leaving the LLP out of the mix of rights and
duties – thereby suggesting that the exclusion from arbitration would be a
conscious choice. In my view, this is a fallacious distinction sought to be
drawn, because it makes no difference to the issue. Even a bare perusal of
the LLP Agreement in question, and the very scheme of the LLP Act would
make such an absolute and sweeping proposition invalid. Indeed, Section
Page 10 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
23(1) of the LLP Act may point to two types of agreement that may be
executed. However, it would still make no difference for purposes of treating
the LLP as an alien to the LLP Agreement. Evidently, the LLP Agreement
contains various provisions that confer rights on the partners vis-à-vis the
LLP and imposes obligations on the partners vis-à-vis the LLP. Mr. Joshi
would submit that the existence of such provisions is irrelevant since,
according to him, what is to be seen is whether the arbitration agreement was
intended to bind the LLP too, or just its partners.
17. Section 23(4) of the LLP Act itself provides that if there is no
agreement on any matter, then the mutual rights and duties of the partners
and the mutual rights and duties of the LLP and its partners, would be
governed by the First Schedule. Item 1 and Item 14 of the First Schedule
merit extraction:
1. The mutual rights and duties of the partners and the mutual rights and
duties of the limited liability partnership and its partners shall be determined,
subject to the terms of any limited liability partnership agreement or in the
absence of any such agreement on any matter, by the provisions in this
Schedule.
14. All disputes between the partners arising out of the limited liability
partnership agreement which cannot be resolved in terms of such agreement
shall be referred for arbitration as per the provisions of the Arbitration and
Conciliation Act, 1996 (26 of 1996).
[Emphasis Supplied]
Page 11 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
18. Under Item 1 of the First Schedule the mutual rights and duties of the
LLP and its partners, subject to the LLP Agreement, is governed by the
provisions of the First Schedule. Item 14 of the First Schedule provides that
all disputes among partners arising out of the LLP Agreement that cannot be
resolved in terms of the LLP Agreement, shall be referred to arbitration
under the Arbitration Act. This is another statutory indication that the
subject matter of the LLP Agreement includes duties owed by partners to the
LLP and also duties owed to the partners by the LLP. This would necessarily
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 had been no arbitration
clause at all 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 analysis made above about the necessity of the LLP
as a party to such proceedings and the absence of implications of the LLP not
being a signatory to the arbitration agreement, would still be as valid even if
the LLP Agreement had no arbitration clause at all. This is because under
Item 14 of the First Schedule to the LLP Act, there would emerge a deemed
and statutory arbitration agreement.
19. On the face of it, the dispute at hand relates to the expulsion of a
partner from the LLP. Whether the Managing Partner alone was responsible
Page 12 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
for it and other partners acquiesced in or approved of that decision is a
subject matter of merits of the dispute. Whether the expelled partner’s
conduct warranted expulsion, is a question that would necessarily require
examination of the injury, if any, occasioned to the LLP’s interests by such
partner’s conduct for the drastic step of expulsion to be taken. Therefore, it
would be simply impossible for this Court to reject this Application under
Section 11 on the basis of the objections pressed into service by Mr. Joshi.
20. Mr. Khandeparkar attempts to throw another spanner in the works on
the question of making a reference to arbitration. He would submit that the
invocation notice dated October 10, 2020 is issued to Kothari and makes
accusations about Kothari, which would show that the dispute is with the
partner and not with the LLP. The upshot of this contention is that the LLP
is not a necessary party to the dispute. Even a plain reading of the invocation
notice addressed to Kothari would show that it was issued to him in his
capacity as the Managing Partner. Therefore, to read it as a personal dispute
of Radia with Kothari in his individual capacity is a misconceived contention.
This argument has to be stated to be rejected. The dispute inter alia relates to
expulsion of Radia. The expulsion is from the LLP. The cause for expulsion
would necessarily have to relate to the injury allegedly occasioned to the LLP
and to its partners, by the alleged conduct of Radia that led to the expulsion.
The invocation notice may make allegations about the conduct of Kothari but
Page 13 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
that would not render the LLP as being irrelevant to the dispute at hand. A
notice issued to the Managing Partner of an LLP could well be regarded as a
notice issued to the LLP. In my opinion, this is a frivolous objection that
deserves to be rejected. In fact, Mr. Amrut Joshi, Learned Counsel for Radia
is right in his contention that under Section 26 of the LLP Act every partner is
an agent of the LLP. He also rightly shows that under Section 27(2) of the
LLP Act, the LLP is liable for the acts of its partners.
21. There is yet another frivolous objection – that Radia is now an expelled
partner while the arbitration agreement is only meant to resolve disputes
among partners. The disputes relate to the expulsion of Radia from the
partnership. The act of expulsion is itself pre-conditioned on his partnership
in BDO, and therefore this submission is to only be stated to be rejected. That
apart, as rightly pointed out by Mr. Amrut Joshi, on the face of the record,
the allegation by Radia is that the expulsion is back-dated inasmuch as Radia
issued a legal notice dated June 3, 2019, after the receipt of which, he was
served with a letter of expulsion dated June 1, 2019. While these are matters
of merits that only the Arbitral Tribunal can examine, the objection that
disputes raised by a former partner cannot be amenable to arbitration is
facetious to say the least, particularly when raised in such factual context.
Page 14 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
22. One more objection from Mr. Khandeparkar is based on Radia having
made reference to the injury to his image and to his defamation at the hands
of BDO and Kothari. Defamation is not arbitrable, Mr. Khandeparkar would
contend. Here again, what part of the claim is arbitrable and what the
approach should be, squarely falls in the domain of the Arbitral Tribunal.
The Arbitral Tribunal clearly has the power to rule on its own jurisdiction
under Section 16 of the Arbitration Act. Holding up a Section 11 Application
on such grounds deserves to be squarely rejected.
23. In these circumstances the objections raised by the Respondents to
allowing this Section 11 Application are totally devoid of merit. 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 is extraneous to the very
LLP Agreement governing the LLP, in my opinion, is untenable and frivolous.
Such objections have been raised evidently to delay and frustrate the
commencement of arbitration proceedings.
24. Radia has nominated Justice (Retd.) C. M. Nayar as an arbitrator. The
Respondents have refused to nominate an arbitrator, which failure to
nominate has led to this Application. Consequently, this Application is
finally disposed of in the following terms:
Page 15 of 17
March 4, 2025
Shraddha::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docxA] Justice (Retd.) Manoj Sanklecha, a former judge of this
Court, and failing him (due to any conflict) Justice (Retd.) Gautam
Patel, also a former judge of this Court, is hereby appointed as the
nominee arbitrator of the Respondents. The Presiding Arbitrator
shall be appointed by the two nominated Arbitrators;
B] A copy of this Order will be communicated to the aforesaid
nominee arbitrator by the Advocates for Radia within a period of
one week from today;
C] The nominee arbitrator is requested to forward the
statutory Statement of Disclosure under Section 11(8) read with
Section 12(1) of the Act to the parties within a period of two weeks
from receipt of a copy of this Order; and
D] After the nominee arbitrators have selected the Presiding
Arbitrator (which they are requested to do within a period of three
weeks from the time the nominee arbitrator appointed hereby
assumes office), the Arbitral Tribunal shall give directions to the
parties on how to proceed further in the matter.
Page 16 of 17
March 4, 2025
Shraddha::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::
CARAP-31-2022 -F.docx
25. Needless to say, the costs of prosecuting this Application is a matter
that the Arbitral Tribunal would take into account when dealing with the
merits of the matter in the course of the arbitral proceedings.
26. All actions required to be taken pursuant to this order, shall be taken
upon receipt of a downloaded copy as available on this Court’s website.
[SOMASEKHAR SUNDARESAN J.]
Page 17 of 17
March 4, 2025
Shraddha
::: Uploaded on – 04/03/2025 ::: Downloaded on – 05/03/2025 22:09:14 :::