Section 9 Relief Cannot Restore Ousted LLP Partner Or Confer Final Control: Rajasthan High Court

The Rajasthan High Court on 30 April held that a Commercial Court exercising interim powers under Section 9 of the Arbitration and Conciliation Act 1996 cannot grant relief that effectively restores a removed partner or confers operational control over an LLP, as such directions would amount to granting final relief prior to the commencement of arbitration.

A Division Bench of Acting Chief Justice Sanjeev Prakash Sharma and Justice Shubha Mehta set aside the Jaipur Commercial Court's directions that had restored Sita Rajesh Varma as a designated partner and ordered joint operation of LLP bank accounts along with ROC compliance directions in an internal LLP dispute. It observed:

“It is the arbitrator who will decide all inter se disputes and it is the arbitrator who will take decisions regarding the disputes and how to settle them. The commercial court while exercising power under Section 9 of the Act of 1996 would not have the power to allow one of the parties to initiate proceedings for dissolution of the firm nor it can direct the Respondent to interfere with the affairs of the LLP as it only has 45% of the shares while the Appellant possesses majority shares. We say so as the powers under Section 9 of the Act of 1996 are only to the extent of passing of interim order which cannot be of final nature.”

The dispute arose from an LLP constituted on 26 September 2020 between Arun Vashishtha, designated partner of Srasti Liquor Bottling LLP, and Sita Rajesh Varma, wife of businessman Rajesh Shamlal Varma, for operating a liquor bottling business in Jaipur.

A supplementary deed dated 15 March 2022 inducted Reeva, wife of Arun Vashishtha, as an additional partner.

The dispute escalated in 2023 after Rajasthan Liquor Limited (RLL) proposed acquiring a 30% stake in the LLP for Rs. 3 crore. Arun Vashishtha and Reeva supported the induction, while Sita Rajesh Varma allegedly insisted on conditions and safeguards before RLL's entry. RLL had advanced funds in multiple tranches, including Rs. 45 lakh each to the partners.

A meeting was held on 12 October 2024 in Sita Rajesh Varma's absence, after which Arun Vashishtha and Reeva resolved to remove her from the LLP and filed Forms 3 and 4 before the Registrar of Companies recording her cessation as partner.

Sita Rajesh Varma thereafter approached the Commercial Court under Section 9 seeking interim protection. On 2 June 2025, the Commercial Court stayed her expulsion, continued her partnership status pending arbitration, directed joint operation of bank accounts, and restrained transfer of LLP assets.

Srasti Liquor Bottling LLP, Arun Vashishtha and Reeva challenged the order under Section 37, arguing that the Commercial Court had effectively passed a final determination by restoring managerial control prior to arbitration. They also alleged misappropriation of funds and interference in LLP operations.

Sita Rajesh Varma contended that her removal was illegal and mala fide, particularly given her 45% stake in the LLP.

The High Court noted that no arbitrator had yet been appointed, and therefore issues such as fraud, breach of trust, and misappropriation could not be conclusively adjudicated at this stage, though it found prima facie issues regarding the expulsion process.

Referring to Clause 38 of the LLP agreement, the Bench observed that expulsion required proof of fraudulent conduct and adherence to due procedure. It further noted that although notice of the 12 October 2024 meeting was issued, Sita Rajesh Varma's inability to attend was not reflected in the minutes.

The judges held that the Commercial Court had exceeded its interim jurisdiction by issuing directions that restored status quo ante and interfered with the LLP's day-to-day management.

The High Court permitted operation of bank accounts under their signatures, and quashed paragraphs 127 to 137 of the Commercial Court's 2 June 2025 order. It protected the LLP's assets and funds from alienation, restored operational control to Arun Vashishtha and Reeva, and stayed execution proceedings initiated by Sita Rajesh Varma.

Accordingly, the High Court partly allowed the appeal.

Appearances for M/s Srasti Liquor Bottling LLP, Arun Vashishtha and Reeva: Advocates Kamlakar Sharma, Senior Counsel, Prakul Khurana, Rajat Sharma, Saksham Pandey, Shubhendra Singh.

Appearances for Sita Rajesh Varma: Advocates Amol Vyas, Bajrang Singh Jaitawat, Abhishek Purohit.