Delhi District Court
Rajiv Kalia vs M/S Homp Llp on 17 August, 2022
IN THE COURT OF DISTRICT JUDGE (COMMERCIAL
COURT) NORTH WEST DISTRICT, ROHINI COURTS,
DELHI
CNR No. DLNW01-001482-2022
OMP (1) (COMM) No. 79/2022
1. RAJIV KALIA
S/o Sh. Tarsem Lal Kalia,
R/o 402, Mangalayatan Building
Jain Mandir Road,
Kota Jn., Kota, Rajasthan-324002
2. RAJESH MEHROTRA
S/o Sh. Gopal Krishna Mehrotra,
R/o H. No. 1727, Sector-9,
Urban Estate (Rural),
Part-1, Karnal, Haryana-132001.
---- Petitioners
Versus
1 M/s HOMP LLP
Registered office at:
101, 1st floor, C-2/4, Pragati Market,
Ashok Vihar, Phase-II, Delhi-110052.
2 BABITA PRAKASH
D/o Sh.Udhav Lal Watwani
R/o A-88, Ashok Vihar, Phase-III,
Delhi-110052.
3 MAYANK PRAKASH
S/o Sh. Om Prakash,
R/o A-88, AshokVihar,
Phase-III, Delhi-110052.
OMP (1) (COMM) No. 79/2022 Page 1 of 12
4 OM PRAKASH,
S/o Sh. Dwarka Das,
R/o A-88, AshokVihar,
Phase-III, Delhi-110052.
---Respondents
Date of institution : 24.02.2022
Date of arguments : 20.07.2022
Date of Judgment : 17.08.2022
JUDGEMENT:
1. Vide this order I shall decide the petition u/s 9 of Arbitration & Conciliation Act moved on behalf of the petitioners against the respondents.
2. It is stated that in the Partnership Agreement dated 14.04.2021 there is an Arbitration Clause and hence, the petition u/s 9 of Arbitration & Conciliation Act seeking interim relief, has been filed. It is stated that respondent no.1 is a Limited Liability Partnership firm (LLP) and respondent no.2 to 4 including the petitioners No. 1 and 2 are its partners. It is stated that petitioners no. 1 and 2 have an idea to develop an App based business and in furtherance of their idea for professional gain, the petitioners incorporated a company NHIGO Services Pvt. Ltd in the same category in which the respondent no.1 is established. To work out over the said idea of developing App needs funds and manpower. Respondent no.4 approached the petitioner no.1 and asked for a meeting as he was ready to work on the Mobile and Web base business Idea which was shared by petitioner OMP (1) (COMM) No. 79/2022 Page 2 of 12 telephonically and after meeting in February 2021, the respondent no.4 agreed to invest funds and it was decided that petitioners and respondent no.4 would constitute a partnership firm for conducting the business. However, later on the respondent no.4 came with new partners i.e. respondent no. 2 and 3, who is wife and son of the respondent no.4 respectively. The Partnership agreement was executed on 14.04.2021 and since respondent no. 2 to 4 were the residents of Delhi, they suggested that the office of the firm should be in Delhi which was agreed by the petitioners. The petitioners visited number of places in order to collect data for the said business and invested huge manpower as well as money for the same. The work for development of the above said APP was assigned to a firm namely TecOrb Technology Pvt. Ltd. and the petitioners introduced the said firm to respondent no. 2 to
4. However, later on respondent no.3 started contacting the said company directly and got the status of the ongoing development work of the App. It is stated that the respondent no. 2 to 4 started to avoid the petitioners to involve in the ongoing process of the development and leveled baseless allegations against the petitioners that the petitioners are not attending the meetings of the firm. The respondents no. 2 to 4 started to pressurize the petitioners to invest huge amount in the account of the firm which was against the terms of the partnership agreement. The said conduct of the respondent no. 2 to 4 created a serious apprehension to petitioners that they may oust the OMP (1) (COMM) No. 79/2022 Page 3 of 12 petitioners from the said business by taking advantage of having major share holders and family members and under the garb of clause 39 of the Partnership agreement dated 14.04.2021. It is stated that the petitioners received a notice sent on behalf of respondent no.1 wherein, a meeting was scheduled to be held on 25.02.2022 and the petitioners were requested to attend the said meeting. It is further stated that the respondent no.4 agreed and believed that it would be worth 500 Crores business idea and it was mutually agreed that respondent no.4 would pay Rs. 20 Crores every six months to the petitioners which will be completed in the next five years after the formation of the HOMP LLP. It is stated that the petitioners came to know that respondent no. 2 to 4 are trying to sell the idea in the market. It is further stated that respondent no. 3 and 4 made an un- explanatory exit from the Whatsapp group namely HOMP PERSONAL on 05.09.2021 and thereafter, respondent no. 4 removed the petitioners from the App development group. It is further stated that the respondent no. 2 to 4 closed all the communication gates for the petitioners and started the partners meetings without taking consent of the petitioners and stopped giving remuneration to the petitioners. It is stated that respondent no. 2 to 4 instructed the employees of HOMP LLP not to share any information to the petitioner in order to hide the development of LLP. It is stated that the petitioners in order to safeguard the interest of the respondent no.1 firm sent an email dated 18.11.2021 to HDFC Bank for the OMP (1) (COMM) No. 79/2022 Page 4 of 12 account suspension of HOMP LLP as the petitioners never met any bank representative for account opening and also not signed any account opening form. The petitioners have serious apprehension that the respondent no. 2 to 4 may use the signed documents by them as the respondents are not providing those documents to petitioners despite demands. It is further stated that the petitioners also made a complaint before ROC about the mis-management in HOMP LLP on 17.12.2021. It is prayed that injunction order be passed against the respondents to restrain them from holding the meeting scheduled to be held on 25.02.2022 at the registered office of respondent no.1. Injunction order is also prayed against the respondents thereby restraining the respondents from acting on the agenda No. 5 & 6 of notice in the meeting scheduled to be held on 25.02.2022 and also to pass an order against the respondent no. 2 to 4 to disclose or submit the detail account of the respondent no.1 firm since the inception of the respondent no.1 firm.
3. The notice of the petition was issued and the respondents filed the reply.
4. The petition is contested on the ground that the present petition has become infructuous as the Annual General Meeting was conducted as per lawful contractual terms of the LLP Agreement and a decision already arrived at vide Board Meeting dated 25.02.2022. It is further submitted that respondent no.1 is a Limited Liability Partnership and duly registered with the Registrar of Companies, in OMP (1) (COMM) No. 79/2022 Page 5 of 12 accordance with the Limited Liability partnership Act, 2008. It is stated that LLP Act provided for the management and operation of the LLP/ its partners and the disputes if any among the partners or the partners and the LLP are more specifically covered under Sec. 23(4) of the Limited Liability Partnership Act, 2008. It is stated that Clause 47 of LLP Agreement also provides for Arbitration. It is further stated that the present dispute between the parties shall be dealt as covered within four corners of LLP Agreement and is excluded from the disputes which cannot be resolved in terms of the agreement. It is stated that the petitioners have indulged themselves in malicious and fraudulent activities by misusing and misappropriating the properties of the LLP and has played fraud upon the LLP and that a complaint dated 02.12.2021 was registered against the petitioners which is pending before PS Ashok Vihar. It is further stated that the petitioners failed to deposit their contribution required for running the business. The petitioners demanded salary when there were no funds with the LLP and the failure to contribute to the funds of the LLP resulted in delay in the entire project. It is stated that since there are allegations of fraud, the same is not covered under the purview of Arbitration. It is stated that the said principle is observed by the Hon'ble Apex Court in various judgments and in Booz Allen and Hamilton Inc. the Apex Court has laid down the principle that:
"Civil or commercial dispute, whether contractual or OMP (1) (COMM) No. 79/2022 Page 6 of 12 non-contractual, which can be decided by a Court, is in principle capable of being adjudicated and resolved by an arbitral tribunal unless the jurisdiction of the arbitral tribunal is either expressly or by necessary implication excluded."
5. It is stated that the petitioners have not come to the Court with clean hands and are not entitled to discretionary relief. Further, the idea without an expression is not a production. It is further stated that the respondents have dealt with the agenda of the AGM dated 25.02.2022 at 11.00 AM and the notice dated 10.02.2022 regarding the same was served to the petitioners, but the petitioners despite service of notice did not attend the said AGM and in the absence of petitioners, majority of the partners conducted the AGM and decided the Agenda as per the terms of the LLP agreement. In the AGM dated 25.02.2022, apart from the Status of the App Development and the financial status of the LLP, the AGM also called for the action against the conduct of the petitioners in the LLP.
6. I have heard the Ld. Counsel for parties and have perused the record carefully. It is worthwhile to mention that the petition was filed on 24.02.2022 and it was directed to be listed on 25.02.2022 at 2.00 PM. The notice was issued to the respondents. The matter was taken up at 11.00 AM and it was directed that operation of the action taken against the petitioners in the resolution is stayed. It is however, submitted on behalf of the respondents that prayer regarding the meeting has become infractutous as by the OMP (1) (COMM) No. 79/2022 Page 7 of 12 time the order was passed, the Resolution was already passed and also placed before the Court as meeting was already held.
7. Coming to the submissions, both parties have relied upon the Clause 47 of the agreement, which is as under:
"All disputes between the partners or between the partner and the LLP arising out of the limited liability partnership agreement which cannot be resolved in terms of this agreement shall be referred for arbitration as per the provisions of the Arbitration and Conciliation Act, 1996 (26 o 1996)."
8. Ld. Counsel for respondent has also relied upon Sec.
23(4) of the LLP Act 2008 which is reproduced herein below:
"(4) In the absence of the 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".
Clause 14 of First Schedule of LLP Act provides the exclusivity of the Arbitration Act in the specific terms reproduced hereunder:
"All disputes between the partners arising out of the LLP agreement which cannot be resolved in terms of such agreement shall be referred for arbitration as per the provision of the Arbitration and Conciliation Act."
9. The bare reading of the LLP agreement where the dispute is liable to be referred to the Arbitration and the LLP Act Sec. 23(4) there is no inherent contradiction. Both, if read together would mean that if there is any dispute amongst the partners or with respect to the agreement, it shall be OMP (1) (COMM) No. 79/2022 Page 8 of 12 decided by way of Arbitration.
10. Ld. Counsel for respondents had argued that since there is an allegation of fraud, therefore, the dispute is not applicable. The mere assertion that there is a fraud involved does not exclude the arbitrability of the dispute as laid down by the Hon'ble Supreme Court.
11. The law on the subject is now well settled by Hon'ble Supreme Court in case titled as Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties, 2020 SCC OnLine SC 655, to quote :-
6. We have, in our judgment in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. [Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2021) 4 SCC 713] , laid down the law on invocation of the "fraud exception" in some detail, which reasoning we adopt and follow. The said judgment indicates that given the case law since N. Radhakrishnan [N. Radhakrishnan v.
Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] , it is clear that N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] , as a precedent, has no legs to stand on. If the subject-matter of an agreement between the parties falls within Section 17 of the Contract Act, 1872, or involves fraud in the performance of the contract, as has been held in the aforesaid judgment, which would amount to deceit, being a civil wrong, the subject-matter of such agreement would certainly be arbitrable. Further, we have also held that merely because a particular transaction may have criminal overtones as well, does not mean that its subject-matter becomes non-arbitrable. We have no doubt that Shri Navare is right in his submission that there is no averment that the agreement dated 20-5- 2006 and the deed of confirmation dated 13-7-2006 were not entered OMP (1) (COMM) No. 79/2022 Page 9 of 12 into at all, as a result of which the arbitration clause would be non- existent. Further, it is equally clear that the suit is one that is inter partes with no "public overtones", as has been understood in paras 34 and 35 of Avitel [Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2021) 4 SCC 713] , as a result of which this exception would clearly not apply to the facts of this case.
7. Smt Doshi then cited State of A.P. v. T. Suryachandra Rao [State of A.P. v. T. Suryachandra Rao, (2005) 6 SCC 149] and read paras 8 to 16 of the judgment to impress upon us that fraud vitiates every solemn act and that a conspiracy with a view to deprive the rights of others in relation to a property would render the transaction void ab initio. This case arose out of an order of the Land Reforms Tribunal which held against the respondent, stating that they had fraudulently taken advantage of the ceiling limit under the Andhra Pradesh Land Reforms (Ceiling on Agricultural Holdings) Act, 1973 by suppression of facts. In this case, the Tribunal reopened the matter when it found that the land which was surrendered had already been acquired in proceedings under the Land Acquisition Act, 1898. The question was whether the Tribunal was justified in modifying the earlier order and leaving out such land. It was held, by a concurrent finding of fact, that the Tribunal was capable of so varying the order. It was in this backdrop that the general observations on fraud were made. This case has no relevance to the exact issue before this Court.
8. We are also inclined to accept Shri Navare's argument on Section 8 of the 1996 Act, in view of some of the recent judgments on Section 8 after the 2015 Amendment Act. [See Ameet Lalchand Shah v. Rishabh Enterprises [Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678 : (2019) 1 SCC (Civ) 308] , SCC at pp. 698-700, Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman [Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714 :
(2019) 4 SCC (Civ) 441] , SCC at pp. 724-725, and Emaar MGF OMP (1) (COMM) No. 79/2022 Page 10 of 12 Land Ltd. v. Aftab Singh [Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 : (2018) 5 SCC (Civ) 652] SCC at pp. 779-783].
It is enough to state that there is a sea change between Section 8 of the 1996 Act and Section 20 of the Arbitration Act, 1940, as has been held in paras 17 to 21 of Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. [Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2021) 4 SCC 713] Post amendment, it is clear that the judicial authority before which an action is brought shall, if the other conditions of Section 8 are met, refer the parties to arbitration unless it finds that prima facie, no valid arbitration agreement exists. As has been held hereinabove, in the present case, the finding that is returned is correct -- a valid arbitration agreement certainly exists as the agreements that are sought to be cancelled are not stated not to have ever been entered into.
12. Coming to the facts of the present case, admittedly, there is a partnership agreement and as per Clause 39 of the Partnership agreement dated 14.04.2021, which categorically mentions:
"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 LLP with fraudulent purpose".
13. Therefore, if the respondents are in majority, they cannot expel the other partners. Clause 39 of the Partnership agreement categorically provides that majority of partners cannot expel any other partner except where activity of partner is found to be fraudulent. The same requires adjudication. The petitioners have prima-facie good case and balance of convenience also lies in their favour and in case, the resolution is not stayed, the petitioners shall suffer irreparable loss. In view of the same, since there is OMP (1) (COMM) No. 79/2022 Page 11 of 12 Resolution of the Partnership, the said meeting has already taken place. The Resolution dated 25.02.2022 regarding expulsion of petitioners is stayed till the final decision in the Arbitration. Parties are directed to go for the Arbitration within three months from passing of this order. Nothing mentioned herein shall tantamount to an expression on merit.
14. Application is accordingly disposed off. File be consigned to record room.
Announced in the open court on 17.08.2022 (GURDEEP SINGH) District Judge (Commercial Court) North West District Rohini Courts, Delhi OMP (1) (COMM) No. 79/2022 Page 12 of 12