MOHIT SARAF V. RAJIV K LUTHRA CASE

On 9 December 2020, the Delhi supreme court reserved its judgment within the saga of the acrimonious split between the co-founders of L&L Partners, Rajiv Luthra (often mentioned as RKL) and Mohit Saraf (referred to as MS in court filings). The hearings had started in earnest again on Martinmas 2020, after court-ordered mediation between the2 had unsurprisingly proved unproductive.
Practically, the delay would be working in Luthra’s favour, of course.

Although Saraf was credited during a deal report released by the firm on 11 December 2020, he de facto doesn’t have access to the office, email or other office infrastructure, and public statements have gone out from Luthra to clients to affect Saraf at their own risk.

As such, a day of additional arguments is another day that Saraf can’t return to the L&L partnership or alternatively, another day that he can’t begin his own firm with any L&L loyalists who might join. Very broadly, in terms of the factual arguments, what has played call at court has been very almost like what had played call at public to date: notably wrangling about who had (and had not) the proper to terminate whom under the (rather terribly-drafted) partnership deed between Luthra and Saraf from 1999, as amended in 2003 and 2004.
Suffice it to mention , each side have disagreed deeply about the way to interpret the document.
Then there was also much ado about the Partnership Act, section 9 of the Arbitration Act (and whether the court could grant injunctive relief), and therefore the Specific Relief Act.

The timeline of facts/events are as the following:

• 11 & 12 November: Saraf’s side makes the case

On 11 and 12 November, Saraf’s lawyers had reiterated his fundamental case that Luthra had no right to terminate him under the deed or in law.

This took place after Saraf had sent an internal email around claiming Luthra had voluntarily-cum-effectively resigned from the partnership, Luthra had responded in turn by locking Saraf out of his firm email account, posting armed guards outside the office, and alerting clients that Saraf was no longer with the firm.

• The respondent’s case: Luthra’s seniors get busy.

Luthra’s counsel’s arguments included that Saraf’s internal assertions that Luthra had retired from the firm were a “misrepresentation,” that Luthra had the right and caused to terminate Saraf’s partnership, as well as that Saraf, had insulted Luthra, conducted himself as unbecoming of a lawyer and was therefore in material breach of the deed, and that Saraf had admitted he was rude to Luthra.

Plus, that Saraf had no case under section 9 and elsewhere for interim relief.

• November 18: Abhishek Manu Singhvi disputes RKL’s retirement

Singhvi hammered home the point that Luthra did not retire several times.

Singhvi also said that section 9 of the Arbitration Act for interim relief was not suitable in this case, as it was an “interpretation exercise” and the position was not “crystal clear.”

Singhvi also claimed that Luthra had powers of final decisions and veto powers under the deed.

“Only Luthra has the power to appraise the performance of Saraf. The Spirit of the deed is that there is a dominant person… there are special rights: I can either withdraw myself or retire. Saraf cannot evict, terminate, expel Luthra.”

• November 19, Neeraj Kishan Kaul takes over.

For the most part, Kaul reiterated Singhvi’s points, claiming that Luthra had the power under the deed to terminate, also raising the following complaints:

• Saraf had unilaterally inducted new partners and given them equity shares, which was “dishonest and contrary to” the deed,
• Saraf had disclosed client details, WhatsApp conversations of partners, and financial information,
• Saraf had been causing “mayhem” and been “backstabbing” his mentor, and now wanted an order to “return to the firm and cause mayhem, as if he hasn’t created enough mayhem already,”
• And some other barbs directed at Saraf: “He grew on the platform that Luthra set for him. Don’t give this impression that you are the Karta-data of the firm”.

Kaul also discussed clause 8 of the deed about termination and dissolution, claiming that Luthra did not have to wait 90 days to terminate Saraf and could, in fact, do so unilaterally.

Kaul said that Saraf should either take the goodwill payment (under the deed) and not compete or start his practice without a goodwill payment.

• November 20: Singhvi continues, claims Saraf has ‘special affinity’ for LI

Singhvi was back in the saddle on November 20.

In substance, Singhvi argued that Saraf and Luthra’s was never an “equal arrangement.”

, that “Saraf has a special affinity for the editor of Legally India” and “lamenting that information that would hurt the firm was published on the website… Accuses Saraf of washing dirty linen in public. Can a fiduciary relationship exist after this happens?”

• December 1: Another day for Kaul

Kaul claimed that Saraf had been asking for Luthra to “buy me off” and that Saraf had “falsely spread rumours” about Luthra’s exit, which was Saraf’s own “unilateral and dishonest interpretation” of Luthra’s WhatsApp messages.

“Mr. Luthra has explained that there is a difference between withdrawing, dissolving, and terminating the partnership. The power to terminate the partnership of a partner is with Luthra,” reiterated Kaul.

Kaul also noted that many of Luthra’s emails had made it clear that Luthra would not be retiring.

• December 7: Parag Tripathi in rejoinder for Saraf

Tripathi said that this was at heart a dispute between partners, of whom one had expelled the other and whether he had the power to do so. Saraf had been compelled to go to court because Luthra “has kept bouncers outside to prevent me from coming to the office. I could have done it on 12/10/2020 and thrown him out of the list of partners. But I didn’t, and he did.”

If I had done what he did to me, the same argument would have happened? Is this the law that in a partnership dispute, whoever pulls the trigger first gets away? You expel a partner, and the partner has no right? Because there can’t be a specific performance? Where is this coming from?

Tripathi claimed the deed did not allow Luthra to do whatever he wanted, and Saraf was not in a servant relationship to Luthra under the act.

• 9 December: Arvind Nigam for Saraf

In summary, Arvind Nigam argued that Saraf should continue being a partner until the partnership was fully dissolved.
“Conduct is irrelevant. I may be the worst partner. If the firm does to dissolution, it won’t be that I won’t get a share,” said Nigam. “The firm court could have been dissolved unanimously. He has a grievance against me. What is his remedy? Please see section 44 of Partnership Act.”

Nigam also said that if Saraf was indeed terminated, how could Luthra remain a partner in a “partnership of one.” “They can’t say the firm is surviving with one [partner].”

• December 9: Promod Nair continues for Saraf

Nair kept it brief and noted that all correspondences between partners had happened on WhatsApp, including Luthra’s notice to Saraf, which is why those were shared in the pleadings. “The best firms are the ones which attract the best lawyers. How to retain them is the core of the issue,” he added. “Till 2014-2015, the firm had a golden run. Then it had problems retaining the best and brightest lawyers.”

The Judgement

The single-judge bench of the Delhi High Court on Jan 18, 2021, ruled in favour of Mohit Saraf in the Saraf v Luthra saga, noting that prima facie, Saraf’s “termination from the partnership by Luthra in terms of the email dated Oct 13, 2020, violates the Deed and the Partnership Act” in terms of Section 12 of the Partnership Act, “where a partner has the right to take part in the conduct of the business.”

The court further held that keeping Saraf away from the partnership business shall be to his prejudice if he finally succeeds in the prospective arbitration proceedings. In light of the above, the Single Judge bench stayed the email’s operation dated Oct 13, 2020, which was issued by Luthra terminating Saraf from the partnership till the conclusion of the prospective arbitration proceedings. The case began with Mohit Saraf – a senior partner at L&L Partners (previously Luthra & Luthra) taking Rajiv Luthra, the firm’s founder, and managing partner, to Delhi High Court after the latter removed him from the firm.

Both the partners are two equity holders in the firm. Luthra owned a majority stake, and the dispute between the two arose with an alleged disagreement over the sharing of the firm’s equity with other partners.

In his plea before the Delhi High Court, Saraf requested the court to stay Luthra’s email notice, dated Oct 13 vide which Luthra had removed Saraf from the firm. He had further prayed for the restoration of his access to the firm’s offices. Along with his removal, not only was Saraf’s office access barred, with guards posted outside the Delhi office, he also lost access to his official email ID, with his name removed from the management section of the website.

After the initial hearing in the case, and with the consent of both the parties, the court had directed the parties to participate in a mediation conducted by Sr. Adv. Sriram Panchu, however, with the mediation yielding zilch results, the parties returned to court. Saraf’s counsel had said that while they were open to working out differences, they wanted a status quo ante order from the court, i.e., a return to the previously existing state of affairs before the Oct 13 email notice.

The firm was re-branded in 2018 to L&L Partners to make it more representative of its partners.

Recent Update of the Case

The HC of Delhi recently ordered that during pendency of Rajiv Luthra’s appeal from Single Judge, Mohit Saraf isn’t allowed to access physically the offices. The court’s interim arrangement has alternatively restored Mohit’s email id and IT Infrastructure (Domain name, database, software, laptop, desktop etc.) for his clients and restricted RKL from interfering with any of his clients. Justice Rajiv Sahai Endlaw and Sanjeev Narula opines that physical aaccess could be a threat for a worse situation in office.

While the case is still sub judice, such circumstances between the pillars of a firm may lead to shaking up of the work environment within the law firm including the associates working in the team of disputed parties. The best solution is yet to come, but it must be a priority for the firm to resolve such disputes for the best interest and provide uninterrupted client services.  

By-

Tanishka Grover

Convener, Reporters’ Committee, INBA

Divyanshu Kaushal

Student Reporter, INBA