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This article, like many others, was first published exclusively for long-term supporters, 3 hours before everyone else got to read it.

Chasm opens at Luthra over opening equity: Rajiv against major dilution, disinheritance, Mohit for • Partnership wants say [UPDATE-1]

Mohit (r) in favour of opening up equity more widely, Rajiv (l) disagrees
Mohit (r) in favour of opening up equity more widely, Rajiv (l) disagrees

A fundamental rift has opened up at L&L Partners over how its long-held promoter equity should be opened up and distributed to other partners in the firm.

The corporate partnership firm, formerly known as Luthra & Luthra, currently has the two co-founding partners hold 100% of the equity: managing partner Rajiv Luthra is understood to hold 66.6%, while senior partner Mohit Saraf owns 33.4%.

Rajiv Luthra has pitched for both Saraf and himself to dilute only 20% of each of their equity on a pro rata basis, freeing only 20% for other future equity partners, we understand from multiple sources in the firm.

By contrast, we understand from several partners that Saraf has been in favour of diluting both their holdings to the point where between 30% to 40% of equity, or more, is available for others (with Luthra giving up the lion’s share of this). Such dilution would not be on a pro rata basis of his and Rajiv Luthra’s equity holdings, which had been fixed more than 20 years ago.

We understand that Saraf’s rationale for diluting more, according to the statements he has made internally, is that he believes a more significant chunk of free equity is required to make such an equity partnership attractive and workable to existing partners and laterals.

Rajiv Luthra’s argument, by contrast, has been that any change should happen only gradually, without releasing a lot of equity at once. He has, however, made some concessions over the course of the discussions.

Another issue of debate is that Rajiv Luthra’s retirement age is currently fixed in the partnership deed at 80 years, and in addition, even after his retirement or the event of his death, his entire equity stake in the firm would go to his family.

Correction 18:09: We had initially misreported that the retirement age under the deed was 85 years, when it is in fact 80 years. The error is regretted. Saraf’s retirement age is fixed at 75 years under the deed.

We understand that discussions had begun again some time late last year, and have been gaining importance within the partnership since then, with several proposals and counter-proposals having been made and floated around.

By contrast, according to a number of L&L partners, we understand that Saraf is in favour of getting this process done more quickly, in part perhaps also prompted by his disagreement over the semi-separate L&L litigation partnership having deferred fee-earner salaries.

Update 18:04: Rajiv Luthra has issued the following statement and we have made two corrections pursuant to the statement, as applicable and indicated:

The details you are inadvertently been carrying are so totally incorrect that it’s difficult to term them mere inaccuracies. It’s a blatant attempt to portray the exact opposite of what was envisaged & how we were to arrive at the new L&L structure for the future.

While these matters of equity have been discussed in detail in multiple partner meetings, it will be incorrect on my part to divulge more details without violating confidentiality that governs these discussions.

Because sometimes,more than 30 colleagues have been privy to these meetings it’s not for me to have to convey both the details & the spirit in which these exercises were undertaken.

The inexactitude of even subordinate details like age of retirement, co-founder, etc. are so obvious that they do not even merit my refuting them.

However in the spirit of discretion and in the way we’ve done things at the firm, I’m merely going to state for the record that these are total falsehoods masquerading as a portrayal of insider moves.

Many in the wider senior (non-equity) corporate partnership, are believed to be in favour of getting equity; over and above that, many would also like a significant democratic say in how the firm is run and managed.

At present, the camps appear to be at an impasse, according to several sources, and ‘words’ are understood to have been exchanged.

For junior L&L partners, much of the discussions would at present be academic, and while many would like the idea of equity and a firm without a glass ceiling, some might also be sympathetic to Rajiv Luthra’s approach of not making any drastic changes, particularly at such challenging economic times with a looming Covid-19 depression.

We have reached out to Rajiv Luthra and Saraf for comment and will update this story if we hear from them or come by any other information.

20 year old deed

We understand that at the crux of the dispute lies the partnership deed entered into between Saraf and Rajiv Luthra when Luthra & Luthra Law Offices in 1999, as it had been called when Saraf had joined as Luthra’s partner and the proprietorship became a partnership. It was back then a much smaller operation. Luthra had started the firm around 1990.

Correction 18:06: We had initially stated that both Saraf and Luthra were co-founders of the firm, but we understand that the firm had been founded in 1990 by Luthra and Saraf only became an equity partner in 1999 when it became a partnership.

The firm, which rebranded to L&L Partners in 2018 in a bid to move away from the promoter-driven brand and to reflect that it now had more than 300 fee-earners and many partners.

The deed, however, has remained in place.

The never-ending equity story

Opening up the firm’s equity has been on the agenda - but perennially shelved - for many years at L&L.

In one of our first major law firm scoops, in 2009, the management had vowed it would be moving to an equity lockstep model, modelled on foreign law firms’.

Rajiv Luthra had told us in June 2009: “I had founded the firm and over the years I kept releasing equity. But then we thought it would be more efficient to bring in a new system.

“We’ve taken a firm view on it - the firm is nice and mature and needs to go to the next level.”

By the end of July 2019 the lockstep equity plans had been officially delayed and eventually, by 2012, even those plans were not officially talked of again.

However, we understand that discussions had occasionally re-started amongst management and the more senior (non-equity) partners about whether equity would ever happen, though those all eventually petered out.

Retention / recruitment without equity can be hard when everyone else is now offering equity

In the time since then, the firm had lost many of its star partners to other firms, particularly in the corporate space.

For rivals, many of which had gradually began dangling at least a modicum of equity to partners, Luthra had become a fertile hunting ground (the most recent example being corporate partner Alina Arora who joined the equity partnership of Shardul Amarchand Mangaldas in May of this year).

Between 2016 and April 2019, at least seven corporate partners had left the firm. Between 2014 and 2016, another four had departed.

The capital markets team had in 2013 seen the departure of partner Madhurima Mukherjee, who had built the practice; this was followed six years later by who had been her second-in-command, partner Manan Lahoty, and 17 other lawyers including four partners who had defected to IndusLaw to set up its capital markets practice.

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