The Bombay High Court recently ruled that partners of a Limited Liability Partnership (LLP) cannot be made personally liable under an arbitral award [Proteus Ventures LLP Vs Archilab Designs].
Justice Somasekhar Sundaresan made the observation even as it upheld an arbitral award requiring Proteus Ventures LLP to pay over ₹88 lakh of unpaid dues to Archilab Designs.
However, the Court ruled that the arbitral tribunal had erred in fastening joint and several liability on Proteus’ designated partners.
“Proteus being a limited liability partnership, the liability of Proteus cannot be visited upon its partners,” the Court observed while striking down that portion of the award.
Pertinently, the Court also said that an arbitral award cannot be set aside merely because the arbitrator does not have a law background and the reasoning in the award is not framed in the style of a trained legal mind.
In August 2018, Proteus had engaged Archilab Designs to design and refurbish its co-working spaces branded The Mesh in Mumbai and Pune. Archilab executed work worth approximately ₹3.93 crore but received only about ₹2.04 crore, leaving an unpaid balance of nearly ₹1.88 crore.
Proteus admitted liability in an April 2019 email and made part payments, including a dishonoured cheque of ₹30 lakh. After the dispute persisted, Archilab invoked arbitration before a sole arbitrator appointed by the Council of Architecture.
In August 2024, the tribunal directed Proteus and its partners to pay ₹88.08 lakh along with interest and ₹24 lakh as damages for hardship and mental agony.
This was challenged before the High Court.
The Court said the tribunal had been “successfully drawn into an error” on whether Mesh Co Works was a separate entity and on the application of the group company doctrine. However, this error was severable and the remainder of the award, particularly the order to pay unpaid dues, stood on firm legal ground.
On the question of liability, the Court stressed that the tribunal’s findings could not extend to the partners.
“The vulnerability of the impugned award can be removed by removing the reference to joint and several liability of the designated partners..The impugned award can eminently be sustained by removing this element,” the Court said.
On damages, the Court upheld the award of ₹24 lakh for hardship and mental agony, citing the Supreme Court’s ruling in Padmanabhan v. Natesan. It also rejected Proteus’ challenge to the independence of the arbitrator, who was a principal of an architecture college.
The Court placed significant emphasis on the role of domain expertise in arbitration, especially when the arbitrator is not a legally trained professional.
Justice Sundaresan recalled the Supreme Court’s observations in Associate Builders v. DDA that arbitrators need not be lawyers and that their decisions should not be overturned simply because their reasoning may not be framed in the style of a trained legal mind.
He noted that in the present case, the arbitrator was a principal of an architecture college and had been institutionally appointed by the Council of Architecture. Far from being a weakness, the Court found this to be a strength in resolving a dispute concerning architectural design, refurbishment and quality of work.
“The Learned Arbitrator may be a lay person for the field of law but in dealing with a dispute over an architect’s work, he is most equipped, being well versed with issues involved in architecture disputes,” Justice Sundaresan observed
Hence, it dismissed the Section 34 petition under the Arbitration and Conciliation Act and upheld the award against Proteus Ventures LLP with the modification that only the LLP, and not its individual partners, would be liable. Deposits made with the registry were ordered to be released within four weeks.
Proteus was represented by Advocate Abhinav Chandrachud along with advocates Arjun Savant, Atharva Gade and Vidhi Kavie.
Archilab was represented by advocate Ali Abbas Delhiwala with Devika Nigade and Dilpreen Kaur instructed by Devika Nigade.
[Read Judgment]