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Analysing the partnership deed, as Rajiv Luthra makes ‘termination’ fait accompli in client emails, erases Mohit from website, posts armed guards

With the working relationship between the two co-founders of the 1999 partnership all but dead and buried, what could there be to salvage under their deed?

L&L sans Mohit Saraf, at least according to one of its website domains and Luthra in email to clients
L&L sans Mohit Saraf, at least according to one of its website domains and Luthra in email to clients

L&L Partners managing partner Rajiv Luthra has written an email to clients notifying them that senior partner Mohit Saraf was “no longer authorised” to act on behalf of the firm. The email follows the removal of Saraf’s name from L&L’s website and the posting of armed guards outside the doors of the firm’s corporate office in Delhi.

According to his email sent to some of L&L’s clients, Luthra noted that he was sharing “information about the termination of Mr. Mohit Saraf’s partnership with our Firm, and request you to not deal with him”.

Luthra did not provide any reasons for Saraf’s purported termination, but added in the email to clients:

We have ensured a smooth transition of all ongoing assignments and as such, if any of your ongoing assignments were being handled by Mr. Mohit Saraf, another Partner, who is now being put in charge of the said assignment, will be in touch with you, soon.

Mr. Mohit Saraf is no longer authorized to represent the Firm in any capacity whatsoever.

Rest assured, none of this will affect any ongoing transaction/s that we are handling for you or your esteemed organization, as our teams are more than capable of executing their work with the highest degree of professionalism.

While that announcement may create some issues for clients, it could be a more immediate tactical and practical problem for Saraf.

The emails follow Saraf having claimed in an internal email on Monday (12 October) that Luthra had retired from the firm via several notices sent to the partnership.

Luthra had quickly followed up on Saraf’s email with a missive to the entire firm, claiming that Luthra had now “terminated” Saraf from the partnership, in which the latter owns a 33.4% stake.

The senior partner had in previous internal emails maintained that Luthra had no rights under a 1999 partnership deed between them to remove Saraf unilaterally.

We have summarised and analysed some of the relevant clauses of that partnership deed below.

Update 20:46: Saraf has now filed a case against Luthra in the Delhi high court, as first pointed out in the comments below.

Domain expertise

The email to clients, as all others from the firm, was sent from Rajiv Luthra’s email address at the luthra.com domain.

However, the long-standing website at the luthra.com domain, which had been re-launched in May 2019 is currently inactive, as we had reported yesterday.

Instead, the relaunched website now appears to be hosted at the llpartners.com domain (we could not confirm since when exactly it has been the firm’s primary website, but the name is in line with Luthra & Luthra Law Offices having rebranded to L&L Partners in 2018).

On that new website, as first pointed out by Legally India commenters, Saraf’s name has now been completely removed from all practice area descriptions.

Saraf also finds no mention in the website’s “our management” section (see screenshot above), which now only includes Luthra, as well as the three equity partners in the separate litigation partnership firm: HS Bobby Chandhoke, Sudhir Mishra and Vijay K Sondhi.

Saraf had claimed in his email of Monday that Luthra was refusing to hand over control of the firm’s domain name to the firm’s partnership entity, instead holding it personally.

Luthra now seems to have exercised that control over the domain name and website by removing Saraf.

We have not been able to confirm whether Saraf still has access to his email at luthra.com: an email sent to his address requesting comment has gone unanswered (but also did not elicit an automatic response either, at the time of publication).

Possession is a large part of the law

Saraf’s charge of Luthra’s seizing of the domain / website was coupled with allegations that Luthra had “wrongfully” removed retainership agreements with clients from the firm premises.

As also first pointed out by Legally India commenters, and as we have independently confirmed from two sources, the ninth floor of L&L’s Delhi offices, which houses the corporate firm and administrative offices, has been under (non-Coronavirus-related) lockdown since earlier this week.

We understand that Luthra has posted armed guards outside the doors under instructions not to let anyone enter.

We have reached out to Luthra and Saraf for comment.

The deed, analysed

With Luthra de facto having locked Saraf out of the firm now and having gone public with his move, the practical responses available to Saraf have become more limited.

While we understand that both sides have been keeping senior counsel on standby, we have no information about whether Saraf has filed or intends to file for litigation.

If Saraf does litigate (and at the moment that is unlikely to be Luthra, since he has now kicked the ball firmly into Saraf’s court) the 1999 deed between them would form the crux of the dispute.

We have analysed and summarised the main provisions in this deed, dated 31 March 1999, which have made for unusual reading.

Luthra decision making casting vote explicitly does not include removal of partners

Until 2010, Luthra explicitly had the casting vote and an effective veto over all “material decisions” at the firm, according to a copy of the 1999 deed we have seen and which had been circulated amongst the firm’s corporate partners by Saraf to buttress his case, in the earlier days in the dispute.

But after 2010 “material decisions” have to be made by majority vote, according to the deed, and Luthra had only had the right to “render final and binding decisions... confined to the following matters”:

Investments, setting up of new firms or branches wherein RKL [Rajiv Luthra] and MS [Mohit Saraf] are partners in the ratio of 3:1:1, amalgamation, merger or collaboration in any form with other reputed international law firms, termination, performance review of partners, all information pertaining to the Firm to third parties, removal of any constituent of the Firm (other than partners)

The last point specifically excludes power from Luthra to remove partners (of whom there are only two under the deed, namely Luthra and Saraf); we have discussed “termination” in more detail below.

There is also provision, “unconditionally and irrevocably”, for Luthra to “appraise the performance of MS and “if in [Luthra’s] opinion he is found wanting in any way”, Luthra has the right to “impose only a token penalty”.

On the flipside, the deed states that Saraf cannot appraise Luthra’s performance and “it is further clarified that MS [Saraf] cannot question the utilisation of time by RKL [Luthra]“.

Despite the one-sidedness of some of these provisions in favour of Luthra as majority equity holder, prima facie none of them appear to give him the right to unilaterally remove Saraf.

Luthra does have termination rights, but only in rare cases

Under another clause - “termination / dissolution” - Luthra has the exclusive right under the deed to dissolve or terminate the partnership, after giving 90 days’ written notice and “best efforts to try and amicably resolve the issues”, but only if:

both equity partners “unanimously agree” to terminate or dissolve,

there is a “Material Breach (as defined hereunder)“,

one of the two is insolvent, loses the right to practice law, dies, or becomes “unfit to practice” law due to mental or physical incapacity, or a party voluntarily seeks retirement or withdrawal (which had been what Saraf had alleged Luthra had done by giving notice to the partnership).

The definition for “Material Breach” does not appear to include a common law definition of “material breach” of an agreement, but instead explicitly notes that it “shall mean, any of the following situations:"

the other partner provides legal services to third parties or existing clients outside of the firm or engages in any other business full-time,

the other partner “engages in activity which is unbecoming of a lawyer or is not permissible for a lawyer, as per applicable code of conduct for the profession”.

Saraf would presumably argue that prima facie Luthra had not satisfied any of the above requirements that would have allowed him to terminate under the deed.

Luthra might disagree but proving that Saraf’s conduct was “unbecoming of a lawyer” could be a relatively high bar considering what has gone down on both sides of the aisle to date.

The assets of the firm, including the brand, would stay with the firm and the remaining, un-terminated partner.

Pay off plus non-competes & non-solicitation, forever?

If Luthra is claiming to have terminated Saraf under this provision, the deed specifies that Luthra would effectively have to buy out Saraf, paying him a percentage of “goodwill” equal to 15% of an annual turnover of the firm, plus 33.4% of the “assets and immovable assets of the firm”.

If Luthra were to voluntarily withdraw / retire from the firm and if he does not ever practice law again, he would be paid 45% of an annual turnover of the firm; Luthra can also leave any time and continue to practice law, without the goodwill payment and without retaining any rights to the firm’s brandname.

But there’s a catch: whichever party is terminated (or voluntarily retires or withdraws) under the deed, is subject to a non-compete in terms of working with any fee-earners of the firm (though this seemingly does not cover clients).

Separately from this non-solicitation clause, the entire “goodwill” payment is repayable under the deed if a departing partner ever again (seemingly in perpetuity):

  • “sets up a practice of law, whether directly or indirectly, alone or in conjunction with any other person”,
  • “commences work whether directly or indirectly with any other entity, or person, which is engaged in the provision of legal services”,
  • works as a “legal advisor or in-house legal counsel”, or
  • “associates with any client or existing member of the Firm for practising law”.

None of those restrictions would be attractive to either Luthra or Saraf, unless one of them is actually planning to retire, contrary to all evidence to date.

It also notes in the deed that Luthra can “leave the Firm for any reason whatsoever and if he exercisices (sic) the option of leaving without taking payment for goodwill, then RKL [Luthra] may continue to practice Law, however, the Name Luthra & Luthra Law Offices will continue to be used by remaining partners”.

That provision of Luthra’s voluntary withdrawal, seems to be the argument that Saraf had made earlier this week, claiming several messages as evidence of Luthra's retirement / withdrawal.

Enough leeway for a lot of litigation (or none at all)

It is worth remembering at this point - and it’s easy to forget with all that has happened - that the dispute had started with a disagreement between the two co-founders under the deed about how to create a wider equity partnership and professionally-structured firm out of L&L Partners.

Increasingly, that is beginning to seem like an irrelevance, and any victories worth winning here could well turn out to be Pyrrhic: besides potential damages and bragging rights, the only substantial thing left to fight over might be the L&L Partners brand name and the partnership business as a going concern.

It is not a stretch for someone in Saraf’s shoes at the current point to ask themselves whether it is all still worth fighting for, or whether it might be easier to simply walk away and re-start another L&L Partners, perhaps by another name.

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