Developer's Ordinary Business Selling Flats Doesn't Give Partner Blanket Authority: Bombay High Court

On Tuesday, 13 October, the Bombay High Court held that a real estate developer's ordinary business of selling flats does not, by itself, establish a partner's authority to enter into every property transaction on behalf of the firm.

Justice Amit Borkar partly allowed a petition filed by Aatif Javeed Merchant, a majority profit-sharing partner of S.S. Crown Infrastructure, under Section 9 of the Arbitration and Conciliation Act, 1996, granting limited interim protection against unauthorised property transactions and directing the other partners to disclose sale particulars within four weeks. The Bench held:

“The fact that selling flats is part of the ordinary business of a developer is relevant. But that fact alone cannot decide whether a partner had authority to enter into each and every transaction.”

The dispute arose from a partnership firm established on 31 March 2021 by Rizwanali Yusufali Sayed and Shadabali Rizwanali Sayed to undertake real estate development. Under a reconstitution deed dated 27 October 2021, Merchant joined the firm with a 75% share in profits and losses, while the other partners held 20% and 5%, respectively.

On 26 November 2021, Merchant obtained a loan of Rs. 2.87 crore from YES Bank and invested the amount in the redevelopment business. The firm subsequently acquired the Gaslitwala Building property at Jacob Circle, Mumbai, on 30 November 2021, for redevelopment as the Park Crown project.

Disputes arose when Merchant alleged that the other partners had sold 43 flats without his knowledge or consent, although disclosures before the Maharashtra Real Estate Regulatory Authority reflected only 14 sales. He further claimed that his capital account showed Rs. 5.38 crore as of 31 March 2024 and that the partners had agreed to settle his entitlement for Rs. 20 crore by 31 July 2026.

On 13 August 2026, Merchant issued a legal notice demanding accounts and copies of sale agreements. He subsequently approached the High Court seeking interim protection pending arbitration.

Merchant argued that Section 19(2)(g) of the Indian Partnership Act, 1932, restricted the other partners' implied authority to transfer the firm's immovable property.

The other partners contended that selling flats formed part of the firm's ordinary business and that the partnership deed did not require Merchant's consent for every sale. They also challenged the petition's maintainability, citing an alleged oral settlement concerning Merchant's retirement from the firm.

Rejecting the maintainability objection, the Court held that the alleged oral settlement did not extinguish the written arbitration agreement.

It examined Section 19 of the Partnership Act, and distinguished the ordinary business of a real estate developer from an individual partner's authority to transfer immovable property. It held that although it could not impose consent requirements absent from the partnership deed, the absence of such restrictions did not confer unlimited authority on the other partners to transfer the firm's immovable property. It observed:

“The Court cannot introduce a condition in the deed which the partners have not expressly agreed upon. However, the absence of such a clause does not mean that Respondent Nos. 2 and 3 had unlimited authority to transfer all the immovable property belonging to the firm,”

The Bench clarified that Merchant's 75% profit share did not confer ownership over 75% of every flat or give him an automatic right to prevent all sales. It declined to determine whether the disputed transactions were unauthorised or fraudulent without examining the relevant records.

It also directed advance written disclosure of proposed transactions and complete sale particulars within four weeks, and ordered the preservation of project records. It refused to impose a blanket ban on sales, permitted construction to continue and left the substantive disputes for determination in arbitration.

Accordingly, the High Court partly allowed the petition, restrained transactions involving unsold units unless undertaken in accordance with the partnership deed and law.

Appearances for petitioner (Aatif Javeed Merchant): Advocates Aseem Naphade, Uzair Kazi, Ambreen Khan and Dhanashree Hublikar, instructed by YMK Legal.

Appearances for respondents (S.S. Crown Infrastructure & Ors.): Senior Advocate Zaal Andhyarujina, along with Advocates Saroj Bharucha, Chandra Naik and Vinod Sakpal, instructed by Chandra Naik & Associates.