Court restrains transfer and creation of third-party rights in disputed properties, emphasizing the necessity of written consent under Partnership Deed and preserving assets pending arbitration.
In a significant interim order dated September 2, 2026, the Bombay High Court, presided over by Mr. Amit Borkar, J., granted protective relief under Section 9 of the Arbitration and Conciliation Act, 1996, in the matter of Vikas Babulal Khandelwal v. Shree Krishna Sai Development Corporation and others. The case revolves around a partnership dispute concerning the authority of a partner to execute agreements for sale involving partnership properties without the consent of all partners.
The Petitioner, Vikas Babulal Khandelwal, approached the Court seeking urgent interim measures to protect the assets of the partnership firm, Shree Krishna Sai Development Corporation (Respondent No. 1), particularly properties identified as Shop Nos. 1 and 2 in the "Khandelwal Tattva" building and multiple shops in the "Khandelwal Acropolis" project. The dispute arose when Respondent No. 2, without the Petitioner's knowledge or consent, executed and registered Agreements for Sale dated July 2 and 7, 2026, in favor of Respondent No. 12, a contractor engaged by the firm. The total consideration for the disputed transactions was approximately Rs. 25.98 crore, alleged by the Petitioner to be grossly undervalued compared to prevailing market rates.
Central to the dispute was the question of authority under the Partnership Deed dated July 14, 2015, which stipulates that no partner shall transfer partnership property without written consent from other partners (Clause 15). The Petitioner contested the validity of two Authority Letters dated September 13, 2025, which purportedly authorized Respondent No. 2 to execute such transactions. The Petitioner produced a forensic report denying the authenticity of his signatures on these letters and pointed out the inability of the Respondents to produce original documents.
Respondent No. 2 defended the transactions, asserting that the properties sold were part of the firm's ordinary business as a real estate developer, and that he had authority arising from both family practice and the Authority Letters. Respondent No. 12 contended it was a bona fide purchaser acting upon public records and the authority of Respondent No. 2, denying that it was a party to the arbitration agreement embedded in the Partnership Deed.
The Court carefully analyzed the issues, emphasizing several key points:
1. Authority under Partnership Law and Deed:
While Section 19(1) of the Indian Partnership Act allows acts done in the ordinary course of business to bind the firm, Section 19(2)(g) restricts a partner's implied authority to transfer immovable property without consent. Clause 15 of the Partnership Deed specifically mandates written consent for transfers of partnership property. The Court found a serious dispute regarding Respondent No. 2's authority, noting the lack of conclusive proof that he was empowered to execute the disputed sale agreements unilaterally.
2. Validity and Scope of Authority Letters:
The Court observed that the Authority Letters do confer some express authority to Respondent No. 2, including to "deal, sign, give possession, collect payment, execute and register" documents related to the identified properties. However, the exact scope of this authority-particularly whether it included the power to transfer partnership immovable property-remained a contested issue requiring further evidence and final adjudication.
3. Disputed Undervaluation of Properties:
The Petitioner presented comparative market data and expert reports indicating that the sale price was significantly below market value, which raised a serious prima facie question about the transaction's fairness. The Respondents explained the pricing on the basis of an adjustment arrangement where the sale consideration would be set off against construction dues payable to Respondent No. 12. The Court held this arrangement was disputed and not sufficiently documented in the sale agreements, warranting preservation of records and assets.
4. Jurisdiction to Grant Interim Relief Against Non-Signatories:
Although Respondent No. 12 is not a party to the arbitration agreement, the Court held that under Section 9 of the Arbitration and Conciliation Act, the Court may grant interim relief against third parties if necessary to preserve the subject matter of arbitration. The rights of Respondent No. 12 arise through the disputed transactions, and absent such protection, the effectiveness of arbitration could be undermined.
5. Interim Relief and Preservation of Status Quo:
The Court restrained Respondent Nos. 2 to 11 from transferring, encumbering, or creating third-party rights in the partnership properties without complying with the Partnership Deed and applicable law. Respondent No. 12 was restrained from acting upon the disputed Agreements for Sale or creating third-party interests in the relevant shops. The Court also mandated preservation of all relevant records and disclosure of assets.
6. Balance of Convenience and Business Continuity:
While emphasizing the need to protect the partnership assets, the Court declined to grant broader relief that would halt the firm's ongoing construction and redevelopment activities unrelated to the disputed properties. It also refrained from appointing a Court Receiver at this stage, noting no evidence of misappropriation or dissolution.
The Court clarified that the interim order is not a final determination of the validity of the Agreements for Sale or the authority of Respondent No. 2, leaving these issues to be resolved in arbitration. It underscored that the observations made were prima facie and meant solely for the purpose of interim protection.
This judgment highlights the courts' balanced approach in partnership disputes involving arbitration, underscoring the importance of written consent for dealing with partnership immovable property and recognizing the Court's power to protect the subject matter of arbitration even against non-signatories when warranted.
Bottom Line:
Arbitration - Partnership disputes and authority under Partnership Deed - Protection under Section 9 of Arbitration and Conciliation Act, 1996.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Section 9, Indian Partnership Act, 1932 Sections 9, 12, 16, 19(1), 19(2)(g), 21, Partnership Deed Clauses 10, 15, 19
