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2025 Supreme(Online)(Bom) 5910
HIGH COURT OF BOMBAY
Somasekhar Sundaresan, J
Proteus Ventures Llp – Appellant
Versus
Archilab Designs – Respondent
COMMERCIAL ARBITRATION PETITION (L) NO. 28606 OF 2024|INTERIM APPLICATION (L) NO. 29321 OF 2024
For the Appellants/Petitioners: Abhinav Chandrachud, Arjun Savant, Atharva Gade, Vidhi Kavie
For the Respondents: Ali Abbas Delhiwala, Devika Nigade, Dilpreen Kaur
Section 34 petitions do not allow appellate review of evidence; an arbitral award is final if findings are plausible. Furthermore, partners of a limited liability entity cannot be held personally liable for the firm's commercial debts, and an erroneous portion of an award may be severed if not interdependent.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 34 - Challenge to arbitral award - Scope of interference - Courts must not interfere with arbitral awards on merits, as they do not act as courts of appeal - Arbitral tribunals are masters of the quantity and quality of evidence - A plausible view held by an arbitrator regarding facts should not be disturbed merely because another view is possible. (Paras 30, 43, 45)
(B) Limited Liability Partnership - Liability of partners - Partners of a limited liability entity cannot be made personally liable for the commercial debts of the entity - Imposing personal liability on partners of a partnership firm for work performed by the firm is contrary to the principle of limited liability. (Paras 35, 36)
(C) Arbitral Award - Partial setting aside - Severability - A court may excise a portion of an award if that component is legally vulnerable or erroneous, provided it is not inseparably intertwined with the valid portions of the award, thereby saving the remainder of the award. (Paras 37, 38, 39)
Facts of the case:
The petitioners challenged an arbitral award claiming unpaid dues for professional services rendered. The petitioners contended that the arbitral proceedings were biased and questioned the competence of the arbitrator. The tribunal had awarded payment for outstanding invoices and damages for mental agony, while also holding the partners of the business entity jointly and severally liable for the amount. The petitioners contested the imposition of personal liability on the partners and sought to challenge the award on the grounds of perversity and lack of legal standing.
Findings of Court:
The court determined that the tribunal’s findings regarding the work performed and the amounts owed were based on evidence and were plausible. However, the court found the tribunal’s decision to impose personal joint and several liability on the partners of the business entity to be legally unsustainable.
Issues: The main issues were whether the award was perverse due to the arbitrator's findings on the merits and whether the partners of a limited liability business entity could be held personally liable for the debts owed by the entity.
Ratio Decidendi: The court ruled that Section 34 jurisdiction is restricted and does not allow for re-appreciation of evidence, affirming that a tribunal's findings must be respected if they are plausible. The court further held that in the absence of valid legal grounds to pierce the corporate veil, partners of a limited liability partnership cannot be held personally liable for the entity's contractual debts. The court utilized the principle of severability to remove the erroneous imposition of liability on the partners while upholding the rest of the valid award.
Result: Petition dismissed; the challenged award is upheld with the specific modification that the personal joint and several liability of the partners is set aside.
| Table of Content |
|---|
| 1. overview of contractual relations, arbitration invocation, and procedural history. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15) |
| 2. court assessment of arbitration conduct, rejection of claims regarding arbitrator bias and procedural irregularity. (Para 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25) |
| 3. parties' challenge regarding the liability of partners in a limited liability partnership (llp). (Para 26 , 27) |
| 4. enforceability of arbitration agreements and confirmation of liability for unpaid admitted invoices. (Para 28 , 29 , 30 , 31 , 32 , 33 , 34) |
| 5. partial setting aside of an award via severance of non-liable parties under the group company doctrine. (Para 35 , 36 , 37 , 38 , 39) |
| 6. admissibility of damages for mental agony and hardship in commercial contract arbitration. (Para 40 , 41 , 42 , 43 , 44) |
| 7. standard of review for awards rendered by domain-expert lay arbitrators. (Para 45 , 46) |
| 8. final order upholding the award with partial modification regarding individual partner liability. (Para 47 , 48) |
JUDGEMENT :
Context:
1. This Petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) impugning an arbitral award dated August 16, 2024 (“Impugned Award”) passed by the Learned Sole Arbitrator appointed by the Council of Architecture, an autonomous statutory body (“Council”).
Factual Overview:
2. The Petitioner, Proteus Ventures LLP (“Proteus”) had engaged the Respondent, Archilab Designs (“Archilab”) to carry out various works across a few projects. The Designated Partners of Proteus namely, Abhinay Ramesh Deo and Shardul Singh Prithviraj Bayas (“Designated Partners”) are also Petitioners in the captioned proceedings since they had been made Respondents in the arbitration proceedings.
3. The works carried out by Archilab for Proteus were governed by an agreement dated August 16, 2018 (“Agreement”) titled “techno-commercial proposal” which contains the arbitration agreement in Clause 23, agreeing to subject the parties to arbitration before the Council. Purchase Orders were executed pursuant to the Agreement. The Agreement was for design, building and refurbishment of the office premises of “THE MESH”. There is no doubt that the Agreement was executed. In fact, in an earlier approach by Archilabs to the Facilitation Council under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”), Proteus has stated on oath that there is an arbitration agreement to contend that the Facilitation Council could not have been approached.
4. It is seen from Purchase Order dated November 16, 2018 (“Purchase Order” – Exhibit C, Page 120) on the letterhead of “THE MESH”, that the Designated Partner of Proteus issued it to Archilab, identifying two “Entity Names”, namely, Proteus and “MESH, Co-Works, powered by M/s. Proteus Ventures LLP” (“Mesh Co-Works”).
5. The disputes essentially centre around payments claimed by Archilab from Proteus in connection with work carried out across five projects located in Mumbai and Pune. These included work on an office in Nariman Point; work for “MESH, Co-Works, powered by M/s. Proteus Ventures LLP” in Pune; works commissioned on its premises in Koregaon Park, Pune; a stall at an ‘Expo’ conducted at Nehru Centre, Worli; and an office of Mesh Co-Works at Hotel Marriot, Pune.
6. The last two assignments were commissioned even while the second and third assignments were in progress. Proteus asked Archilab to adjust payments made for the second and third assignments to be used towards the work involved in the last two assignments. It is seen that the cash flow and the running accounts between the parties flowed across projects when there was no dispute in their relationship.
7. The work commissioned to Archilab was to the tune of Rs. ~3.93 crores. Archilab received only Rs. ~2.04 crore. A balance of Rs. ~1.88 crores was due and payable and that is writ large on the face of the record. By an email dated April 23, 2019,
