‘Section 9 powers cannot be of final nature’: Rajasthan HC modifies commercial court order in LLP partner ouster

Jaipur: The Rajasthan High Court has partially modified a commercial court’s interim order in a Limited Liability Partnership ouster dispute, holding that powers under Section 9 (interim measures) of the Arbitration and Conciliation Act, 1996 are confined to interim measures and cannot be of a final nature. A division bench of Acting Chief Justice Sanjeev Prakash Sharma and Justice Shubha Mehta upheld the prima facie reinstatement of an ousted partner but quashed eleven other directions that, the bench said, encroached upon the arbitrator’s domain.

The dispute involved M/s Srasti Liquor Bottling LLP, set up in September 2020 between Arun Vashishtha and Sita Rajesh Varma. A 2023 proposal to induct Rajasthan Liquor Limited (RLL) for a 30% stake at Rs 3 crore triggered a fallout. The other partners held a meeting on 12 October 2024 in Varma’s absence, ousted her from the LLP and intimated the Registrar of Companies through Forms 3 and 4. Varma then approached the commercial court under Section 9 of the Arbitration Act, which on 2 June 2025 stayed her expulsion and issued a series of operational directions.

The appellants contended that Varma’s husband had misrepresented himself as the LLP’s owner, that Rs 2.4 crore had been deceitfully misappropriated, and that her conduct attracted Section 316 (criminal breach of trust) of the Bharatiya Nyaya Sanhita, 2023. Varma’s counsel countered that she held a 45% stake and had been illegally removed.

The bench held that since no arbitrator had been appointed, the merits could not be examined. On Clause 38 of the LLP deed — which bars expulsion of a partner except where fraud is proven — the bench observed that while notice of the 12 October 2024 meeting had been served, Varma’s intimation of unavailability had not been recorded in the minutes, making her ouster prima facie inconsistent with the deed. The bench, however, found that the commercial court had overstepped its Section 9 jurisdiction by directing joint operation of the LLP’s bank accounts, permitting dissolution proceedings and granting reliefs in the nature of an interim arbitral award. Relying on the Supreme Court’s ruling in Punjab State Civil Supplies Corporation Limited v. Sanman Rice Mills (2024 SCC OnLine SC 2632), the bench reiterated that the scope of intervention under Section 37 (appealable orders) of the Arbitration Act is narrow.

The court 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 bench accordingly quashed paragraphs 127 to 137 of the impugned order dated 2 June 2025, restored the LLP’s status as it existed prior to Varma’s ouster on 12 October 2024, stayed all execution proceedings initiated by her, and directed that the LLP’s accounts be operated under the signatures of the appellants. Day-to-day functioning was permitted to continue with the appellants, and properties of the LLP were ordered protected from sale, mortgage or third-party interest pending the arbitration. The appeal was partially allowed.

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