Partner Liability in LLPs and Arbitration: Lessons from the Bombay High Court’s Proteus Ventures LLP Decision

Posted On - 6 December, 2025 • By - Deepika Kumari

Introduction

The rise of the Limited Liability Partnership (LLP) in India changed the game for business owners and professionals. Suddenly, you had the flexibility of a partnership, but with the security of a company, your personal assets stayed safe, even if the business hit a rough patch. Still, when disputes make their way to arbitration or court, the same old question keeps popping up: Can this shield of limited liability ever be pulled away, especially if there’s talk of misconduct or partners working together in a shady way? 

It’s a big deal in arbitration circles. Tribunals sometimes stretch certain legal doctrines, like the “group of companies” principle or “piercing the veil”, to pin liability on individuals behind the corporate curtain. So, there’s a real push-and-pull between letting parties decide their own fate in contracts and sticking to what the law actually allows. You see this tension all the time in Indian arbitration cases. 

Recently, the Bombay High Court tackled this issue again in the Proteus Ventures LLP v. Archilab Designs Pvt. Ltd.  case (September 30, 2025). The court agreed with the arbitral tribunal on most points, yes, there was an arbitration agreement, and yes, compensation for non-financial loss made sense. But when it came to making the LLP’s designated partners personally pay up, the court drew the line. This ruling clears up a lot about what “partner liability” really means under the LLP Act, 2008, and puts some needed boundaries around what arbitrators can do under the Arbitration and Conciliation Act, 1996. 

LLPs and the Principle of Limited Liability

Limited liability isn’t just a legal quirk; it’s the backbone of modern business. Section 3 of the LLP Act spells it out: an LLP is its own legal person, separate from the people who run it. Section 27(3) goes further, just being a partner doesn’t make you personally responsible for the firm’s debts. The only time you’re on the hook is if you act fraudulently or try to trick creditors. Lawmakers set it up this way so people could start businesses or work together without risking everything they own. 

But here’s where things get messy. Sometimes, arbitrators lump partners and the LLP together, especially when partners sign contracts or sit in on tough negotiations. They’ll argue it’s only fair to hold everyone “jointly and severally” liable. But that kind of thinking can chip away at the whole idea of limited liability. Indian courts have warned against this, reminding arbitrators they have to follow the real law, not just what feels fair under Section 28(3) of the Arbitration Act. 

So, the big question: Can an arbitrator, by leaning on equity or group company theories, just ignore the limits in the law and make individual partners pay up? The “group of companies” doctrine, recognized in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. , lets arbitrators pull in non-signatories to an arbitration if their actions show they meant to be bound. But using this to actually make them pay, rather than just sit at the arbitration table, is a whole different story. 

A few cases have drawn the lines here. In Gayatri Balasamy v. ISG Novasoft Technologies Ltd. , the Madras High Court said you can’t ignore the LLP’s separate identity unless the law specifically says so. The Supreme Court in Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd.  backed this up, saying you can only “lift the veil” if there’s fraud or someone’s dodging the law, not just because a business deal went south. 

Bottom line? Arbitration is flexible, sure, but it still has to play by the rules of substantive law. Arbitrators aren’t supposed to act like courts of equity, rewriting the law or tossing out legislative policy for a sense of fairness. That’s the backdrop for the Proteus Ventures  decision. 

The Proteus Ventures Case: Facts and Tribunal’s Findings

In Proteus Ventures LLP v. Archilab Designs Pvt. Ltd. , Proteus hired Archilab for architectural work across several projects. Things soured when Proteus didn’t pay its invoices. The sole arbitrator ordered Proteus to cough up ₹88.08 lakh in unpaid dues and an extra ₹24 lakh for the “mental agony” caused to Archilab. But the real shocker? The arbitrator also said the LLP’s designated partners had to pay up too, personally and together, basically ignoring the legal wall between the partners and the LLP. 

Proteus challenged the award under Section 34 of the Arbitration Act, saying three things: First, there was no real arbitration agreement between the parties. Second, the contract didn’t allow for damages for mental agony. Third, making the partners personally liable went against the LLP Act. 

Archilab pushed back. They pointed out that the arbitration clause was right there in the contract, and the partners had already admitted liability in their emails. Plus, since the partners were directly involved in negotiations, Archilab argued, holding them personally liable made sense. 

Bombay High Court Judgement

Justice Somasekhar Sundaresan took the issues one at a time. On the first point, he said there was a valid arbitration agreement. The contract spelled it out clearly, and Proteus didn’t object during the proceedings. One of Proteus’s designated partners had even sent an email admitting liability, which gave the tribunal jurisdiction. 

On the matter of damages for mental agony, the court took a practical view. Usually, commercial arbitrations are about money lost, not emotional pain. But there’s no legal rule stopping compensation for mental distress if there’s real evidence of suffering. The ₹24 lakh awarded was unusual, sure, but the court let it stand as a reasonable call. 

The last, and most important, issue was personal liability. The court was clear: partners in an LLP are shielded from personal liability unless there’s fraud. The LLP Act says so, and that’s that. The arbitrator’s move to pin liability on individual partners, based on the “group of companies” idea, just didn’t fly. It broke both substantive law and public policy. But instead of tossing out the entire award, the court just cut out the problematic part, sticking to its preference for minimal interference in arbitration. 

Broader Jurisprudential Implications

First, it doubles down on the protection LLP partners get. The whole point of an LLP is to keep partners’ liability limited. Arbitrators can’t get creative and impose personal liability unless there’s clear proof of fraud or misrepresentation. Without that, trying to extend liability just isn’t allowed. 

Second, the judgment draws a clear line between what’s in the contract and what the statute requires. Arbitration is all about what the parties agreed to, but the LLP Act’s rules come from the law itself. Even if someone signs on behalf of the LLP, it doesn’t automatically make them personally responsible. 

Third, the court clarified how to deal with awards that go too far. By severing the bad part and keeping the rest, the court showed that you don’t have to throw out an entire award just because of one mistake. It’s a practical way to keep things moving while staying within the law. 

In the end, the Bombay High Court’s ruling in Proteus Ventures LLP v. Archilab Designs Pvt. Ltd. strikes a smart balance. It respects arbitration results but won’t let them override statutory protections. It’s a reminder: arbitration isn’t a loophole for getting around the rules in the LLP Act. Limited liability for partners isn’t some technicality, it’s a core right. Only clear cases of fraud or intentional wrongdoing can break that shield. As arbitration keeps evolving in India, this case stands out as a warning to tribunals: stay true to the law. And for businesses, it’s reassurance that courts will defend the legal structure of LLPs while supporting efficient arbitration. With this decision, the Bombay High Court has given both arbitrators and business owners more clarity and confidence in India’s commercial legal system.