The turnover at L&L Partners’ corporate partnership (excluding the separate litigation and other partnerships) had increased by 12% between the 2018-19 and the 2019-20 financial years, revealed court filings by senior partner Mohit Saraf in the Delhi high court dispute with managing partner Rajiv Luthra.

However, not all was necessarily rosy from a financial side, as Saraf predicted a Rs 20 crore financial hole due to the end of a large mandate, and the loss of Rs 34 crores of billings due to partner exits (read on for more information).

The pleadings, a softcopy of which we have seen after they have begun circulating in wider legal circles outside the firm, include more than 700 pages of annexed discussions about equity dilution and other crises via WhatsApp and email, partnership deeds, termination notices, as well as a transcript of the infamous Zoom townhall by Luthra in late September.

As revealed in court on 22 October by Saraf’s counsel, the entire L&L-brand firm has had a turnover of around Rs 250 crore ($34m). That figure included all the corporate partnerships - which had been co-founded by Luthra and Saraf in 1999 - as well as the litigation, tax and intellectual property (IP) partnerships.

But unlike the foreign legal market, there has been very little transparency in revenue figures of Indian law firms (besides our report of Khaitan & Co turnovers having topped Rs 600 crore).

Now, the WhatsApp conversations between Luthra and Saraf annexed to the court pleadings have provided further insight into the size and profitability of one of India’s largest corporate law firm businesses, as well as other interesting insider information.

Tomorrow (Friday, 6 November), the Delhi high court will again hear Saraf's counsel arguing for an injunction against Luthra, to reinstate him into the firm.

Here is what’s at stake.

Structural context

For context, before getting too deeply into the weeds, there are at least six L&L Partners-branded entities. Internally at L&L, these are often referred to as L1 to L4:

• L2 is the corporate partnership, co-owned by Luthra (with a 66.6% stake) and Saraf (33.4%).
• L3 is the L&L Partners-branded litigation partnership that also includes three other equity partners. In this, Luthra is the largest single equity holder with 23.35%, while Saraf owns 11.12%. Another 18.51% each are held by HS (Bobby) Chandhoke, Sudhir Sharma and Vijay K Sondhi (and another 10% is held by partner Deepali Chandhoke, who is also the spouse of HS Chandhoke).
• L4 is the separate corporate partnership that just includes the firm’s Mumbai office.
• tax and IPR are two more L&L-branded partnerships for each respective practice area, each with separate deeds.
• L1 is included here mostly for historical reasons, as it is the Rajiv Luthra-owned sole proprietorship Luthra & Luthra Law Offices from the early 90s, which predates the 1999 partnership between Luthra and Saraf. Technically L1 still exists, though operationally the brand name, revenues and overall business have been assigned to the other partnerships.

The financial data below primarily concerns the corporate partnerships (L2 and Mumbai’s L4, in some cases).

2018-19 corporate revenues: Rs 147 cr; profits: Rs 43 cr

According to a WhatsApp message by Luthra to Saraf in May of 2020:

• in 2018-19 the “adjusted corporate turnover... (after adjustment tax/IPR and L-3)" (see below) was Rs 147.15 crore (around $20m).
• “Adjusted Corporate Profit" for that year was Rs 43.2 crore (around $6m), according to Luthra’s message.

Those figures are equivalent to a profit margin of around 29%.

In line with his 66.6% equity share in the corporate partnership, Rajiv Luthra then said that his profit share for 2018-19 was Rs 28.8 crore (around $3.9m), while Saraf’s share was the remaining Rs 14.4 crore (around $1.9m).

Luthra had sent the above message in the course of a longer WhatsApp conversation with Saraf about the future of the firm, notably with Luthra proposing to dilute some equity in exchange for a 7.5% share of the top line revenues for Luthra (i.e., off the revenues before the deduction of any expenses).

But 2018-19 may also have been an unusually profitable year for corporate.

In December 2019, Saraf wrote to Luthra via WhatsApp that “on an average for last 3 years I have made 8 cr and you have made 16 cr from L2 and L4 in a year”.

PEP: Amongst top 30 US firms

If you were to convert Luthra and Saraf’s 2018-19 profits paid to profits per equity partner (PEP), which is a measure often used in international legal markets to measure a law firm’s profitability, it would put just the corporate partnership (excluding litigation) PEP at $2.9m.

That would put L&L amongst the top 30 US international firms' PEP figures, though it would still be less than the $6.3m that an average one of 85 Wachtell Lipton Rosen & Katz partners take home.

With the litigation partnership, Saraf and Luthra’s yearly profits may be even higher.

Going by the Rs 16 crores profits that Luthra had apparently taken in 2018-19, Saraf argued in December 2019 in a series of messages about diluting their equity that they were both outliers in the Indian market.

“Very few people in corporate firms make 16 Cr,” wrote Saraf. “None of the founders’ own 66 per cent of the Firm - CAM, SAM, AZB, JSA, KCO or Trilegal but on other hand multiple partners (not founding Partners) make over 8 cr. in top firms like Vishwanath from Cyril, Ashwath and Hardip from AZB, Akshay Chudasma from SAM.”

Saraf’s argument was that without the two giving up more equity, L&L would not be able to attract and retain star talent.

He also added that his own contribution to L&L was surely therefore of a greater value than Rs 8 crores.

2019-20 corporate revenues: Rs 167 cr

Around June 2020, Saraf wrote to Luthra that in the 2019-20 financial year the corporate revenue in the corporate Delhi partnership (L2) in 2019-20 was Rs 111 cr.

The Mumbai office corporate partnership (L4) was Rs 56 cr that same year.

Combining both of those gives a 2019-20 overall corporate firm revenue of Rs 167 cores (around $22m).

Overall, for both corporate partnerships together, that represents a year-on-year turnover growth of around 12%.

Saraf was quoting the figures in order to demonstrate that under Luthra’s stewardship the Delhi office had grown much less rapidly than the Mumbai office and partnership, which Saraf had managed.

Saraf noted that since 2008-09 the Delhi (L2) partnership had grown from Rs 80 cr then its average annual growth rate until 2020 equated to only 3.06% per year (comparing unfavourably to “the Indian economy [...] growing at 7%“, according to Saraf).

By contrast, claimed Saraf, the Mumbai office that he himself had set up and managed had grown from Rs 9 cr in 2008-09 (or by 18.09% year-on-year).

Saraf's predictions for 2020-21 dire: Hole of Rs 62 cr

Saraf then continued arguing that the outlook for 2020-21 was not good and that Luthra’s dilution offer would not work commercially for the firm as a whole.

“After, spending a couple of days and many hours in discussion with our partners, Mr. Luthra one thing is very clear,” Saraf wrote. “Pre-covid and Post-Covid, the worlds are completely different.

“The uncertainty quotient in business is looming large in the post Covid world and I won’t be surprised if the Firm incur operating losses 20-21 and 21-22.”

In particular, he pointed to several factors that would put financial stress on the firm, not just related to Covid.

In particular, the loss of the books of business of five partners could cost the firm Rs 42 crores in revenues, he argued, while the end of the ArcelorMittal insolvency would hit revenues by Rs 20 crores.

“They [partners] are cognisant that Insolvency work (25 crore) which was a key driver of revenue (especially ArcelorMittal - 20 cr) would be dried up. Alina’s (10 cr), Manan’s (12 cr), Sameen’s (8 cr), Amit Shetye (7 cr) and Aditya Periwal (5 cr) departure would have added to the hole,” wrote Saraf, adding: “Covid has dramatically altered prospects in the near to middle term.”

Of these:

• Alina Arora joined Shardul Amarchand Mangaldas,
• Amit Shetye went in-house to GIP,
• Aditya Periwal joined AZB, and
• Manan Lahoty went to IndusLaw with 17-fee-earners including partners.

Senior projects partner Sameen Vyas had passed away in October 2019.

Saraf also predicted that profitable practices from other partners would come under pressure from rival firms looking to poach them if the firm did not adjust its equity model and retention strategies.

Saraf mentioned nine corporate partners in particular, across two teams - Bikash Jhawar’s team of five partners, and the team consisting of Vaibhav Kakkar, Sundeep Dudeja and one more partner - as accounting for a total revenue of Rs 55 crore.

Those two corporate teams had made up 50% of both Mumbai and Delhi corporate partnership revenues and a whopping 60% of profits, according to Saraf.

Luthra declined to comment on the accuracy of the figures, and Saraf did not respond to a request for comment.