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HC challenge nixes Luthra ex parte arbitral order in Rs 70 cr claim vs exiting partner Lahoty (but upholds non-solicit) [UPDATE-2]

Lahoty’s departure from Luthra proving more dramatic than perhaps anticipated
Lahoty’s departure from Luthra proving more dramatic than perhaps anticipated

Manan Lahoty, head of the crack capital markets team that is set to join IndusLaw soon, has won a major victory in the Bombay high court yesterday in a multi-hour hearing against his as-of-now-still employer L&L Partners.

According to Bombay high court sources with knowledge of the hearing, L&L, formerly known as Luthra & Luthra, had obtained an ex parte arbitration order against Lahoty last week, on 28 September, allegedly without giving him sufficient notice.

The ex parte order is understood to have been made by a sole arbitrator who had been appointed by Luthra to settle certain issues relating to Lahoty’s departure (more details below).

However, Bombay high court Justice GS Kulkarni set aside that arbitral order yesterday after Lahoty approached the court, eventually leading to both parties to reach an agreement, recorded by the judge.

Furthermore, Kulkarni held that the mandate of the sole arbitrator should be terminated, with Justice BN Shrikrishna substituted as sole arbitrator instead.

Update 11:29: Something we had missed earlier and that has been pointed out in the comments: L&L has arguably partially won with a statement made by the judge in the order that could prima facie hamstring Lahoty starting out at Indus, at least initially, with the risk that existing clients approaching him being run past the new arbitrator first:

6. Apart from what is agreed above, as there are still some issues, in my opinion, it is in the interest of justice, that in the event the petitioner intends to accept any professional work in regard to the existing clients of the firm which is not part of the existing professional work, already in hand with the firm, such issues be raised before the arbitral tribunal and appropriate orders thereon be passed by the arbitral tribunal, after hearing the parties.

All contentions in that regard are expressly kept open.

Messages sent to both Lahoty and L&L senior partner Mohit Saraf have gone unanswered as at the time of publication.

Also read:

Arbitrator

On top of that, Kulkarni held that:

The learned Arbitrator shall make a disclosure as per the requirement of Section 11(8) read with Section 12(1) of the Arbitration and Conciliation Act,1996 before entering the arbitration reference.

Under section 11(8), the appointment of an arbitrator should be done with due regard to “other considerations as are likely to secure... an independent and impartial arbitrator”. Section 12(1) of the Act further specifies that:

When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

Those two sections make potentially quite an indictment of the initial arbitrator (who is, fortunately for them, not named in the order) as well as potentially of Luthra, which had appointed that arbitrator and apparently obtained a favourable order from him or her in the first place.

However, in a separate petition under section 14 of the Act, Lahoty’s counsel Thakker said that “statements and allegations as made against the learned sole arbitrator stands unconditionally withdrawn”.

Non-solicits, status quos continue

In addition, perhaps providing a clue as to what the original arbitral award was relating to, Lahoty’s counsel Nitin Thakkar made a statement to the court that Lahoty “would not solicit any retainers”, which is a fairly standard clause of most law firm partnership agreements not to actively poach fee-earners.

Also recorded in the order is Thakkar’s assurance that “as regards the existing clients, the arrangement which prevails today in respect of professional work in hand shall continue to operate”, unless decided differently in future orders by the new arbitrator.

Finally, Kulkarni basically left it up to the parties to settle any future disputes about clients via arbitration, noting that “in the event the petitioner intends to accept any professional work in regard to the existing clients of the firm which is not part of the existing professional work, already in hand with the firm, such issues be raised before the arbitral tribunal and appropriate orders thereon be passed by the arbitral tribunal, after hearing the parties.”

The two sides had argued at length for several hours, according to accounts from the high court, with the order recording that Lahoty was represented by senior advocates Nitin Thakkar and Gaurav Joshi, advocate Rohit Gupta and instructed by Sagar Kesar; Luthra had briefed senior advocates Darius Khambata and Dipen Merchant, and advocates Chirag Kamdar and Mehul Shah.

Eventually, according to the order, however, “the parties have agreed to arrive at an interim arrangement”, which Kulkarni accepted.

Arbitration order had ‘restrained Lahoty from alienating assets’

Update 05:14: Bar & Bench has just reported about the Bombay high court order, particularly with a few extra details on the original arbitration.

Apparently, according to B&B, Lahoty had been given a day’s notice of the arbitration before it made its ex parte order, having been asked on 27 September to appear on 28 September at 2:30. Mumbai-based Lahoty did not appear (presumably for the Delhi-based arbitration) but raised objections by email, including on eligibility of the tribunal.

B&B has also confirmed in its story that well-known arbitrator and senior advocate AS Chandhiok had been the (unnamed) sole arbitrator appointed by L&L (though the B&B story is silent on the high court’s findings vis-a-vis the arbitrator).

However, B&B had more details on the original arbitration, noting that L&L had claimed Rs 70 crores against Lahoty, including a refund of 40% in retainer fees due to him for his billings according to his contract, as well as the rest in damages.

The arbitrator had found in favour of Luthra on the basis of “prima facie evidence pointing to” Lahoty breaching his non-compete and non-solicitation clauses (which purport to be binding for “three years”), according to B&B. The arbitration order (quotes all B&B’s):

  • held Lahoty had “induced seventeen lawyers of the Capital Markets practice at L&L Partners to terminate their engagement with the firm”, and
  • “restrained Lahoty from alienating any of his assets” (which could be code for freezing of his bank accounts?).

Lahoty vs Luthra Bombay high court order (PDF)

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