Authority Letter Allowing Partner To “Deal” With Firm Property Not Blanket Sale Power: Bombay High Court

The Bombay High Court has held that an authority letter allowing a partner to “deal” with partnership property cannot by itself be treated as a blanket power to sell or transfer the firm's immovable properties.

The court observed that the authority letters gave the partner “authority of some substance”, but did not confer an unrestricted power to sell or transfer the firm's immovable properties.

Justice Amit Borkar, while deciding a plea under the Arbitration Act seeking interim relief observed:

“Depending upon the transaction, this expression may cover documents required for completing the transaction. But it cannot be treated as giving a blanket power to sell or transfer all properties of the Firm. The expression has to be understood with reference to the property identified in the Authority Letter, the transaction contemplated and the purpose for which the authority was given. Its scope cannot be enlarged beyond what the document, when read as a whole, reasonably permits.”

The dispute concerns seven shops in Khandelwal Tattva and Khandelwal Acropolis. Agreements for Sale were executed in favour of Amiraj Constructions, the contractor and purchaser, for an aggregate consideration of ₹25.98 crore, at approximately ₹30,000 per square foot.

Partner Vikas Babulal Khandelwal challenged the transactions and disputed the signature attributed to him on the authority letters. He relied on a forensic report dated August 18, 2026 in support of his challenge.

Vikas also alleged that the shops had been agreed to be sold at a substantially undervalued price. He relied on a JLL sales mandate indicating a rate of ₹1 lakh per square foot, a 2023 feasibility report estimating ₹80,000-₹85,000 per square foot, and a CBRE report recording an average of ₹94,689.22 per square foot across nine comparable transactions.

The court held that it was not required to finally determine the market value at this stage. It found that the material showed a substantial difference between the transaction price and the comparable rates, which was “sufficiently large to raise a serious prima facie question” about whether the transactions were in the interest of the firm.

The court also considered Clause 15 of the partnership deed. It requires written consent of the other partner before partnership property or a partner's interest in the partnership is assigned, mortgaged, pledged, sold or otherwise transferred.

The court held that the fact that the firm is engaged in real-estate development does not, by itself, establish authority for every sale of its immovable properties. It also noted that, in the absence of a usage or custom of trade to the contrary, Section 19(2)(g) of the Partnership Act does not confer implied authority on a partner to transfer immovable property belonging to the firm.

Partner Ashok Babulal Khandelwal had relied on the authority letters and argued that the transactions were within the ordinary business of the real-estate firm. Amiraj Constructions, the contractor and purchaser, also relied on the authority letters, which described Ashok as authorised to “deal, sign, give possession, collect payment, execute and register” documents concerning the projects.

Amiraj also argued that it was not a party to the partnership deed's arbitration clause. The court held that this did not prevent it from granting limited interim protection affecting Amiraj, as the rights claimed by the contractor arose from the transactions under challenge.

The court restrained Amiraj Constructions, the contractor and purchaser, from acting upon or giving effect to the Agreements for Sale and from creating third-party rights in the seven shops. It separately restrained the firm's other partners and associated entities from selling, transferring, alienating or encumbering firm assets except in accordance with the partnership deed and the Partnership Act.

The firm's other partners and associated entities were also directed to preserve the firm's records and disclose details of its assets, properties, transactions and the seven shops.

The court declined to appoint a receiver over the seven shops or all units in the two projects. It also allowed the firm's other partners and associated entities to continue its ordinary construction and development activities, subject to the partnership deed, the Partnership Act and the court's directions.

The court made clear that it was not finally declaring the Agreements for Sale void or deciding Amiraj's rights.

Questions concerning Ashok's authority, the authority letters, valuation, the alleged set-off arrangement and Amiraj's ultimate rights were left open for final determination in the arbitral proceedings.

For Petitioner (Vikas Babulal Khandelwal): Senior Advocate Zal Andhyarujina and Advocates Karl Tamboly, Aakansha Agarwal, Dipti Das, Sunil A. Vyas, Aagam Mehta, Meet Vithalani, Pranav Ameta and Sakshi Verma, instructed by Fox Mandal & Associates LLP.

For Respondent (Ashok Babulal Khandelwal): Senior Advocate Pravin Samdani and Advocates Mayur Khandeparkar, Abhishek Kothari and Chitra Rao.

For Respondent (Vijay Babulal Khandelwal): Advocate Himanshu B. Takke.

For Respondent (Babulal Bhagwandas Khandelwal): Senior Advocate Sharan Jagtiani and Advocates Akshay Doctir, instructed by Sneha Vani.

For Respondent (Amiraj Constructions): Senior Advocate Ashish Kamat and Advocates Aditya Mehta and Hiren G. Shah.