Court Refuses Blanket Restraint on Sale of Flats, Directs Prior Disclosure and Preservation of Records Amid Allegations of Unauthorized Transactions
In a significant judgment dated October 13, 2026, the Bombay High Court, presided by Justice Amit Borkar, partially allowed the petition filed by Aatif Javeed Merchant under Section 9 of the Arbitration and Conciliation Act, 1996. The case pertains to a partnership dispute involving a redevelopment project named "Park Crown," where the petitioner, holding a 75% share in the partnership firm S.S. Crown Infrastructure, alleged unauthorized sales and financial mismanagement by the other partners, Respondent Nos. 2 and 3.
The dispute arose from the Deed of Reconstitution dated October 27, 2021, under which the petitioner was admitted as a partner with a 75% share in profits and losses of the partnership business engaged in building and development. The petitioner contended that despite his majority interest, Respondent Nos. 2 and 3, who managed day-to-day operations, sold at least 43 flats without his knowledge or consent and failed to disclose complete accounts and sale agreements, raising concerns of potential financial impropriety and diversion of funds.
While acknowledging that sale of flats forms part of the ordinary business of a developer, the Court emphasized that the implied authority of partners under Section 19 of the Indian Partnership Act, 1932, does not automatically empower working partners to transfer immovable property of the firm without proper authority, unless established by partnership deed or relevant trade custom. The Court clarified that the petitioner's 75% share in profits does not equate to ownership of 75% of each flat, but he is entitled to question transactions allegedly made without authority or adverse to the firm's interests.
Rejecting the respondents' objection that the petition was not maintainable due to an alleged oral settlement and the petitioner's purported retirement, the Court held that the written arbitration clause in the partnership deed remained operative and that the settlement's validity and consequences were to be decided by the arbitral tribunal.
Balancing the need to protect the petitioner's rights and allowing the firm to continue its business, the Court declined to grant a blanket injunction restraining all sales or dealings with every unit in the project. Instead, it issued a limited interim order restraining Respondent Nos. 2 and 3 and their agents from dealing with any unsold units except in accordance with the partnership deed and Indian Partnership Act. The order mandates prior written disclosure to the petitioner of proposed transactions, including purchaser details, consideration, payment mode, and terms, allowing the petitioner to raise lawful objections. Further, the respondents must provide a detailed statement of all units sold, booked, unsold, or encumbered, along with copies of agreements and relevant records, which must be preserved to ensure transparency and facilitate arbitration.
The Court also clarified that the interim order does not invalidate any sale agreements executed prior to the judgment nor affect the rights of third-party purchasers, leaving such issues for final determination in arbitration or subsequent legal proceedings.
This judgment underscores the importance of balancing interim protection of partnership rights with the need to avoid unduly hampering ongoing business activities in real estate development disputes. It highlights that authority to transfer partnership property must be clearly defined and that partners with majority profit share cannot claim personal ownership of specific partnership assets.
Bottom Line:
Arbitration and Conciliation Act, 1996 Section 9 Partnership dispute in redevelopment project - Partner having 75% share in profits cannot claim personal ownership in each flat of firm - Sale of flats by developer-firm may form part of ordinary business, but implied authority of partners to transfer firm property must still be tested under partnership deed and Partnership Act - Blanket injunction against all sales refused - Limited protection granted by directing that unsold units be dealt with only in accordance with deed and law, with prior disclosure to petitioner and preservation/disclosure of sale and account records.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Section 9, Section 7; Indian Partnership Act, 1932 Sections 11, 14, 19(1), 19(2)(g), and 22
Aatif Javeed Merchant v. S.S. Crown Infrastructure, (Bombay) : Law Finder Doc Id # 2995791
