The Bombay High Court ruled that designated partners of a Limited Liability Partnership (LLP) cannot be made personally liable under an arbitral award. In the case of Proteus Ventures LLP vs Archilab Designs, Justice Somasekhar Sundaresan upheld an arbitral award directing Proteus Ventures LLP to pay over ₹88 lakh in unpaid dues to Archilab Designs, but struck down the portion of the award which imposed joint and several liability on its designated partners. The court held that since Proteus is an LLP, liability cannot be visited upon its partners individually.
The facts of the case are that Proteus engaged Archilab Designs in August 2018 to design and refurbish its co-working spaces branded “The Mesh” in Mumbai and Pune. Archilab carried out work valued at approximately ₹3.93 crore, but received only about ₹2.04 crore, leaving a balance of nearly ₹1.88 crore unpaid. Proteus admitted liability by an email in April 2019 and made some payments including a dishonoured cheque of ₹30 lakh. When the dispute persisted, Archilab invoked arbitration before a sole arbitrator appointed by the Council of Architecture. In August 2024, the arbitral tribunal directed Proteus and its partners to pay ₹88.08 lakh along with interest plus ₹24 lakh as damages for hardship and mental agony.
Proteus challenged the award before the High Court. The Court noted that the tribunal erred in fastening joint and several liability on Proteus’s designated partners. The court observed that such personal liability was not permissible under the legal structure of an LLP, which limits liability to the entity itself rather than its individual partners. The High Court held that the arbitral tribunal’s reasoning could be sustained if the element of liability imposed on the partners were removed, and thus modified the award to hold only the LLP liable.
The Court also addressed other objections raised by Proteus. It found that there was an error in the tribunal’s reasoning about whether Mesh Co Works was a separate entity and in the application of the group company doctrine; however, it also found that these errors were severable, and did not affect the core claim for unpaid dues, which was upheld. In respect to damages for hardship and mental agony, the High Court affirmed the award of ₹24 lakh, relying on precedent, and rejected Proteus’s challenge to the arbitrator’s independence.
In relation to the arbitrator’s qualifications, the Court emphasized that arbitrators need not be legally trained professionals. It noted precedent holding that arbitral awards should not be overturned merely because the arbitrator lacks a law background or frames their reasoning not in the style of a trained legal mind. The Court found it appropriate in this case that the arbitrator was a principal of an architecture college, chosen by the Council of Architecture, and that in a dispute regarding architectural design, refurbishment and quality of work such domain expertise is relevant and valuable.
The effect of the ruling is that the Section 34 petition under the Arbitration and Conciliation Act was dismissed, with the modification that only Proteus Ventures LLP— and not its individual designated partners— will be liable under the award. The High Court further ordered that deposits made with the registry should be released within four weeks.
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