Case Note & Summary
The applicant, Kartik Radia, a former partner of BDO India LLP, was expelled from the LLP. He sought to initiate arbitration under the LLP Agreement dated August 1, 2014, against both BDO and its Managing Partner, Milind Kothari, alleging high-handed behaviour and misconduct in effecting the expulsion. The respondents opposed the Section 11 application under the Arbitration and Conciliation Act, 1996, arguing that BDO was not a signatory to the LLP Agreement and therefore could not be a party to arbitration, and that the disputes were personal against Kothari. The court rejected the absolute proposition that an LLP can never be a party to arbitration under the LLP Agreement. It held that the LLP is the very subject matter of the LLP Agreement, which is a charter document akin to the Articles of Association of a company. The LLP is duty-bound to act in accordance with the LLP Agreement, and the scheme of the Limited Liability Partnership Act, 2008 (Sections 2(1)(o), 2(1)(q), 7(2)(ii), 22, 24) shows that the LLP enjoys rights and owes obligations to its partners. The court found that the arbitration clause covers disputes relating to the business and affairs of the LLP, necessarily entailing the LLP as a party. The court also noted that the applicant is dominus litus and can choose whom to implead. Accordingly, the court allowed the application and appointed a sole arbitrator to adjudicate the disputes.
Headnote
A) Arbitration Law - Non-Signatory to Arbitration Agreement - LLP as Party - Whether an LLP can be bound by arbitration agreement in LLP Agreement despite not being a signatory - Limited Liability Partnership Act, 2008, Sections 2(1)(o), 2(1)(q), 7(2)(ii), 22, 24; Arbitration and Conciliation Act, 1996, Section 11 - The court rejected the absolute proposition that an LLP can never be a party to arbitration under the LLP Agreement because the LLP is the very subject matter of the agreement and its charter document; the LLP is not a third party but is duty-bound to act in accordance with the LLP Agreement; implicit consent can be inferred from the relationship and common commercial objective (Paras 1-2, 9-14). B) Arbitration Law - Section 11 Application - Scope of Review - Existence of Arbitration Agreement - The court examined the existence of the arbitration agreement due to the respondents' trenchant objection, holding that the issue of whether a non-signatory has consented is normally for the arbitral tribunal, but the Section 11 court must rule on existence when challenged (Paras 12-13).
Issue of Consideration
Whether disputes between partners of an LLP and the LLP can be covered by the arbitration agreement contained in the LLP Agreement to which the LLP is not a signatory
Final Decision
Application allowed. The court rejected the respondents' objection and appointed a sole arbitrator to adjudicate the disputes between the parties. The court held that the LLP can be a party to arbitration under the LLP Agreement despite not being a signatory.
Law Points
- Arbitration agreement can bind non-signatory LLP if LLP is subject matter of agreement
- LLP Agreement is charter document akin to Articles of Association
- LLP is not a third party to LLP Agreement
- Section 11 court can examine existence of arbitration agreement
- implicit consent inferred from conduct and relationship
