Saligram Ruplal Khanna & ANR Vs.
Kanwar Rajnath [1974] INSC 114 (1 May 1974)
KHANNA, HANS RAJ KHANNA, HANS RAJ BEG, M.
HAMEEDULLAH CHANDRACHUD, Y.V.
CITATION: 1974 AIR 1094 1975 SCR (1) 358 1974
SCC (2) 642
ACT:
Indian Partnership Act. ss. 42 and 47-Scope
of-Dissolution of a firm constituted for a fixed term-Mutual rights and
obligations of partners after dissolution suit for rendition of
accounts-Limitation.
HEADNOTE:
A partnership consisting of the appellants
and the respondent had entered into a lease agreement with the Custodian of
Evacuee Property in respect of a mill and took possession of the mill on 31st
August, 1952. The period of partnership was for 5 years being the period of the
said lease. The partners having failed to pay one installment of rent the
Custodian served on the partners a show cause notice on 12-2-54 why the lease
should not be terminated. On account of certain financial difficulties the
parties entered into a second agreement on February 24, 1954.
Disputes having arisen between appellants and
the respondent, the appellants filed a suit on December 20. 1960 alleging that
after the termination of the lease by the Custodian on May 25, 1954 the two
appellants and the respondent had orally agreed not to dissolve the partnership
in spite of the termination of the lease and prayed for a declaration that the
partnership between them and the respondent was still subsisting on the terms
and conditions set out in the partnership deed dated 24th February, 1954.
They also prayed for rendition of the
partnership accounts.
The respondent on. the other hand alleged
that there was no oral agreement between the parties and that the claim for
rendition of accounts was barred by limitation.
The trial court held that the appellants had
failed to prove that there was an oral agreement between the parties and that
the claim for rendition of accounts was barred by limitation.
On appeal the High Court upheld the findings
of the trial court.
Dismissing the appeal,
HELD :-(1) No inference of implied agreement can
be drawn from the material on record. [371E] According to section 42 of the
Indian Partnership Act, subject to a contract between the partners a firm is
dissolved if constituted for a fixed term by the expiry of that term. This
provision makes it clear that unless some contract between the partners to the
contrary is proved. the firm, if constituted for a fixed term would be
dissolved by the expiry of that term. [371G-H] In the instant case it was
indicated in the agreement of partnership that the period of partnership had
been fixed at 5 years because that was the period of the lease of the mills and
the lease was terminated on May 25, 1954. [372B-C] According to s. 47 of the
Indian Partnership Act after the dissolution of the firm the authority of each
partner to bind the firm and the other mutual rights and obligations of the
partners continue notwithstanding the dissolution so far as may be necessary to
wind up the affairs of the firm and to complete transactions begun but
unfinished at the time of dissolution but not otherwise. The word 'transaction'
in section 47 refers not merely to a commercial transaction of purchase and
sale but would include also all other matters relating to the affairs of the
partnership. The completion of a transaction would cover also the taking of
necessary steps in connection with the adjudication of a dispute to which the
firm before its dissolution was a party. In the instant case after dissolution,
the partnership subsisted merely for the purpose of completing pending transactions,
winding up the business and 359 adjusting the rights of partners and for these
purposes and these only the authority, rights and obligations of the partners
continued [374B-D, F-G] (3)The suit for rendition of accounts brought by the
appellants on December 20, 1960 was barred by limitation.
In the absence of a contract to the contrary
there could be no survival of the firm after August 30, 1957 when the period of
partnership expired. [373D-F]
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 143 of 1969.
(Appeal by Special Leave from the Judgment
& Decree dated the 22nd March, 1968 of the Bombay High Court in Civil
Appeal No. 23 of 1963).
S. T. Desai, K. L. Hathi and P. C. Kapur for
the appellants.
K. S. Cooper, A. B. Diwan, Vasant Kotwal and
I. N. Shroff for the respondent.
The Judgment of the Court was delivered by
KHANNA, J.-This appeal by special leave is directed against the judgment of a
Division Bench of the Bombay High Court affirming on appeal the decision of the
learned single Judge whereby a suit for dissolution of partnership and
rendition of accounts filed by the two plaintiff-appellants, Saligram Ruplal
Khanna and Pessumal Atalrai Shahani, against Kanwar Rajnath
defendant-respondent was dismissed. The, partnership which was sought to be
dissolved carried on business under the name and style of "Shri Ambernath
Mills Corporation' (hereinafter referred to as SAMCO). The property which
according to the appellants belonged to the partnership consisted of three
mills at Ambernath. One of them was a woollen mill, the other was a silk mill
and the third was an oil and leather cloth factory with land, bungalows and
shawls attached thereto. In addition to that, there was a bobbin factory at
Taradeo with offices at Bombay, Ahmadabad and other places. For the sake of
convenience the above property may be described, as it was done in the High
Court, as "Ambernath Mills". Although the case involves a tangled
skein of facts, the points which survive for determination in appeal are rather
simple.
The Ambernath Mills originally belonged to a
company called Ahmed Abdul Karim Bros. Private Ltd. The mills were declared to
be, evacuee property in September 1951 and the Custodian took over the
management of the mills in pursuance of the provisions of the Administration of
Evacuee Property Act, 1950. It was then decided that the mills should be
managed by displaced persons who had been industrialists in Pakistan. A private
limited company was formed of 31 persons for taking over the management of the
mills. Rs. 25,000 were contributed by each one of those persons in that
connection. The appellants and the respondent too were members of the company.
Appellant No. 1 and the respondent had migrated at the time of partition from
Gujarat in West Punjab. The respondent was a big industrialist and left behind
extensive properties in Pakistan. He held verified claim of rupees 23 lakhs in
lieu of property left by him in West Pakistan. The first appellant had a
verified claim of 5-L177SupCI/75 360 Rs. 22,000 in respect of residential
property left in Pakistan. In addition to that, he had a disputed claim in
respect of industrial properties. The second appellant had a verified claim of
about Rs. 80,000. The two appellants and the respondent were associated by the
Custodian with the management of the Ambernath Mills. By August 1952 all the
members of the private limited company dropped out. It was accordingly decided
by the Custodian to grant, a lease of the Ambernath Mills to the respondent and
the two appellants. On August 30, 1952 two documents were executed.
One of the documents was an agreement of
partnership between the two appellants and the respondent for carrying on the
business of Ambernath Mill's under the lease in the name and style of Shri
Ambernath Mills Corporation. The other document was the agreement of lease
executed by the Custodian of Evacuee Property as lessor and the appellants and
the respondent carrying on business in partnership under the name and style of
SAMCO, as lessees. The subject-matter of the lease was Ambernath Mills. It was
stated in the lease that the lessees had appointed the respondent as their
chief representative with full powers of control, management and administration
of the entire demised premises. The lease was to be for a period of five years
to be computed from the date on which the possession of the demised premises
was handed over to the lessees, subject to sooner determination thereof on any
of the contingencies provided in clause 21 or on the breach of any condition on
the part of the lessees or in the event of any dispute among the lessees
resulting in the closure of the mills. it was also provided that the lessees
would purchase and the lessor would sell to the lessees at an agreed price the
stocks of raw materials, unsold finished goods, consumer's stores, spare parts,
cars and trucks and other movables which had already been vested in the lessor,
as well as three diesel generating sets purchased by the lessor. III the event
of any difference on the question of the price, the same was to be fixed
through one or more experts. The sale was to be completed within a period of
three months from the date of the agreement. The lessees were authorised to
take as partner one or more displaced persons who had filed claims under the
Displaced Persons Claims Act, 1950 subject to the prior approval of the
Government. The agreement also contained a provision for reference of any
dispute arising out of the agreement of lease to arbitrators chosen by the
parties by mutual consent. The annual rent payable by the lessees was fixed at
Rs. 6,00,000 payable in four quarterly installments of Rs, 1,50000 each on or before
30th day of each quarter. The lessees also undertook to deposit or furnish bank
guarantee in the, sum of Rs. 7.00,000 as security for the payment of the value
of raw material, unsold finished goods,, stores. spare parts and other
articles. Clauses 17 to 21 of the agreement of lease read as under :
"17. It is agreed between the Lessor and
the Lessees that when the entire claims of the lessees filed by them under the
Displaced Persons Claims Act, 1950, for all their properties are determined and
the compensation payable to them 361 by the Government of India is ascertained,
the market value of the entire demised premises shall be determined by an
expert appointed in that behalf by the Government of India, Ministry of
Rehabilitation, and such value as is determined shall be taken as price for
acquisition by the lessees of the full proprietary interest in the demised
premises in the manner shown in the next succeeding paragraph.
18.The Lessees, being all displaced persons
from Pakistan and having left large properties in Pakistan, have all of them
put in claims in respect of their proper-ties and other assets left by them in
Pakistan under the Displaced Persons Claims Act, 1950. When the claims under
the said Act of the Lessees are verified and determined and compensation
payable in respect thereof has been ascertained the compensation payable to the
Lessees shall be taken into consideration, and it has been agreed as a term of
this Agreement between the parties hereto with the concurrence of Govt.
of India, Ministry of Rehabilitation, that on
such total compensation being arrived at the Lessees shall be allotted
proprietary rights in the demised premises, in the manner shown viz., in case
the value of the aggregate compensation payable to the Lessees is equivalent to
the value of the demised premises as assessed, the Lessor shall convey the
demised premises absolutely to them as full proprietors thereof, their interest
in the demised premises being in proportion to the compensation payable to each
of the Lessees and the respective shares in the proprietary interest shall be
adjusted according to the amount of compensation payable to each as finally
determined.
19.In case the aggregate amount of
compensation payable by the Government of India to the Lessees exceeds the
value of the demised premises as determined, the demised premises will be
conveyed to the Lessees, their share inter se being in the proportion of the
amount of compensation payable to each.
20.It is further agreed that in case the
aggregate amount of compensation payable to the Lessees falls short of the
value fixed for the demised premises, the Lessor shall be entitled to associate
with the Lessees in the ownership of the proprietary interest to be allotted as
aforesaid other displaced persons who have left industrial concerns in
Pakistan, so that the total compensation payable to the Lessees and the others
thus associated is equivalent to the total value of the demised premises and
the said demised premises shall then become the absolute property of the
Lessees and others thus associated in proportion to the total compensation
payable to each as finally determined.
362 21.The lease to be granted pursuance
hereto shall be liable to determination earlier on the settlement of the claims
of the Lessees and the allotment and transfer of the full proprietary interest
in the demised premises as provided in clauses 17 to 20 hereof;
provided that if the value of the full
proprietary interest in the demised premises exceeds the amount of compensation
payable to the Lessees and part of such proprietary interest is allotted to
other persons as provided in clause 20 hereof, the Lessees shall be at liberty
to continue the lease for the unexpired residue of the term on the terms and
conditions and yearly rent prescribed hereunder, the yearly rent being adjusted
proportionately to the extent of the proprietary interest allotted and transferred
to the Lessees." According to the partnership agreement executed by the
two appellants and the respondent on August 30, 1952, each partner had agreed
to contribute a capital of Rs. 1,00,000.
The amount of Rs. 25,000 already paid by each
partner to the Custodian was regarded as part payment of the capital of rupees
one lakh. Each partner had one third share in the partnership, but it was
provided that the shares would be adjusted by the respondent if fresh partners
were taken in the partnership. The respondent was to be the managing partner
and was entitled to assign work in the partnership to the two appellants. It
was agreed that the appellants were not to interfere directly or indirectly in
any manner with the management and control of the business by the respondent.
The respondent was also authorized to form a limited liability company for
running the business of the partnership with the consent of the Custodian and
the appellants agreed to join the company as shareholders on such terms and
conditions as might be agreed when such company was formed. The period of the
partnership was five years "being the period of said lease".
The partnership took possession of Amberath
Mills on August 31, 1952. The respondent directed the first appellant to be in charge
of the administration of the mills at Ambernath, while the second appellant,
being an engineer, was placed in-charge of the properties, machinery and stores
of the mills. The respondent was in overall charge of the concerned.
It appears that the partnership made some
progress in the first few months. The stocks of raw material, finished goods,
stores and other movables which were deemed to have been purchased by SAMCO
under the terms of the agreement of lease were in the meantime valued by an
auditor appointed by the Custodian at rupees 30 lakhs. The Custodian called
upon the partnership in April 1953 to pay a sum of rupees 7 lakhs or to furnish
a bank guarantee for the said amount as provided in the agreement of lease.
This payment could not be made by the partnership. There was also difficulty in
paying the sixth installment of the rent. A cheque for Rs.
1,50,000 was issued but the same was
dishonored.
Subsequently, arrangements were made to pay
Rs. 1,00,000.
An amount of Rs. 5,0,000 out of the sixth installment
remained unpaid.
36 3 On February 12, 1.954 the Custodian
served a notice on the respondent and the two appellants to show cause why the
agreement of lease should not be cancelled on account of breach of conditions
in the matter of the payment of the sixth quarterly installment of rent and the
failure to deposit or furnish bank guarantee for the amount of Rs.
7,00,000. A writ petition was thereupon filed
by, the partnership on February 16, 1954 in the Bombay High Court for quashing
the notice issued by the Custodian.
In the meantime, the second appellant sent
letter dated February 8, 1954 to the respondent suggesting that his share in
the partnership be reduced to 1 anna in a rupee or to such other fraction as
the respondent thought fit. A similar letter was addressed by the first
appellant. On February 24, 1954 the parties entered into a second agreement of
partnership. It was agreed in the new partnership agreement that the share of
the first appellant would be 3 annas and that of the second appellant 1 anna in
a rupee.
The respondent was to have the remaining 12
annas share. It was also agreed that the two appellants would not have the
right, title and interest in the name, capital, assets and goodwill of the
partnership. It was provided that the new partnership would be deemed to have
been formed as from October 1, 1953. Accounts for the period from August 30,
1952 to September 30, 1953 were to be made up on the basis of the partnership
agreement dated August 30, 1952 and the profits and losses for that period were
to be distributed accordingly. The capital of the partnership was agreed to be
arranged by the respondent and he was to be the managing partner in control of
the entire affairs of the partnership.
He was also to get interest at 6 per cent on
all finances arranged by him. The appellants agreed to carry on such duties in
the concern as might be assigned to them by the respondent. The period of the
partnership was to be "the Outstanding period of the lease".
The writ petition referred to above filed by
the partnership to quash the notice of the Custodian was allowed by a single
Judge of the Bombay High Court on March 31, 1954. On appeal filed by the
Custodian, a Division Bench of the High Court as per judgment dated April 13,
1954 set aside the order of the single Judge and dismissed the writ petition.
Certificate of fitness for appeal to this
Court was granted by the High Court on May 5, 1954. Stay order was also issued
on that day restraining the Custodian from dispossessing the respondent and the
appellants from Ambernath Mills. Appeal against the decision of the Division
Bench of Bombay High Court was then filed in this Court. The Custodian of
Evacuee Property made an order on May 25, 1954 cancelling the agreement of
lease of Amberanath Mills dated August 30, 1952. The possession of the mills
was voluntarily delivered by, the partnership to the Custodian on June 30,
1954.
Representations were made on behalf of SAMCO
to the Minister of Rehabilitation during the later half of 1954 for being
allowed to retain Ambernath Mills. A communication was also addressed on
December 14, 1954 to the Minister of Rehabilitation suggesting, inter alia,
that the claim of the Custodian against the partnership in respect 364 of
arrears of rent and the value of raw material and other goods should be
referred to arbitration.
The Displaced Persons (Compensation and
Rehabilitation) Act, 1954 came into force on October 9, 1954. On March 10, 1955
the Central Government issued notification under section 12 of that Act
acquiring the Ambernath Mills. An advertisement was then issued by the Central
Government for the sale of Ambernath Mills. Tenders for the purchase of the
mills were required to be submitted by July 9, 1955. On June 7, 1955 a
representation was made by SAMCO that in view of the pendency of its appeal in
the Supreme Court in respect of the Custodian's notice for cancellation of the
lease, the Ambernath Mills should not be sold. On July 7, 1955 the partnership
submitted a tender for the purchase of the mills in accordance with the
Government advertisement. The offer was for an aggregate amount of Rs.
55,55,555. On October 14, 1955 the partnership made another offer to purchase
the mills for an aggregate amount of Rs. 75,00,000 on terms and conditions to
be mutually agreed upon. The offer of October 14, 1955 Was made after the last
date for the receipt of tenders. The appeal referred to above filed by the
partnership in this Court against the judgment of the Bombay High Court was
dismissed by this Court on November 10, 1955 vide reported case Rai Bahadur
Kanwar Raj Nath & Ors. v.Pramod C. Bhatt, Custodian of Evacuee Property(1).
This Court held that the Custodian had the power of cancelling the lease under
section 12 of the Administration of Evacuee Property Act and that the notice
issued by the Custodian was valid. This Court, however, left open the question
whether the partnership had any right to purchase the mills under the agreement
of lease.
Notice under section 80 of the Code of Civil
Procedure was issued to the Custodian and the Central Government on November 9,
1955 intimating the intention of the partnership to file a suit for restraining
the Custodian and the Central Government from selling Ambernath Mills. The
Central Government on December 30, 1955 informed the partnership that its offer
to purchase the mills for Rs. 55,55,555 was rejected. The partnership
thereafter withdrew its subsequent offer of purchase of the mills for Rs.
75,00,000.
On January 31, 1956 a suit was filed on
behalf of the partnership against the Custodian and the Central Government for
permanent injunction restraining them from selling Ambernath Mills to any
person other than the partners. The said suit was dismissed by the City Civil
Court Bombay on October 8, 1956. An appeal was thereupon filed by SAMCO against
the decision of the City Civil Court. This appeal too was dismissed by a
Division Bench of the Bombay High Court as per judgment dated January 14, 1957.
This judgment is reported as Shri Ambernath Mills Corporation v. G. B.
Godbole, Custodian of Evacuee Property &
Anr. (2) It was held by the Division Bench that the agreement of purchase
containing clauses 17 to 21 of the lease deed was indefinite and vague in
various particulars and that the agreement of sale was not capable of (1)
[1955] 2 S.C.R. 977.
(2) A.I.R. [1957] Bom. 119.
36 5 specific performance. The Division Bench
further held that the Central Government by virtue of notification dated March
10, 1955 acquired the mills free from all encumbrances and that such right as
SAMCO might have had of specific performance of agreement of sale was in the
nature of an encumbrance. The Central Government, according to the Division
Bench, must be deemed to have acquired the mills free from that encumbrance. No
appeal was filed 'against the above decision of the Bombay High Court.
The respondent, it would appear, started
making efforts from the middle of 1957 to get the Ambernath Mills for himself.
He was in Delhi for several months from June
1957 onwards.
On August 14, 1957 an agreement for sale of
Ambernath Mills to the respondent was executed by the respondent and the President.
The price of the mills was fixed at Rs.50,11,000. Out of this amount, a sum of
Rs. 2,00,000 was to be paid on the execution of the agreement as earnest money
and in part payment of the purchase price. This amount could be paid either in
cash or by adjustment of net compensation payable to the respondent or to other
displaced persons who might assign their verified claim in favour of the
respondent. A further sum of Rs. 28,00,000 was to be paid within three months
from the date of the agreement either in cash or by adjustment of the net
compensation payable to displaced persons who assigned their verified claims in
favour of the respondent. The balance of Rs.20,11,00,0 was to be paid in seven
equal installments. It was provided that if the respondent failed to pay the
amount of Rs. 28,00,000 within three months from the date of agreement the
earnest money of Rs. 2,00,000 paid by him was to be forfeited. In addition to
the above, the respondent undertook to mortgage the mills for a sum not
exceeding Rs.30,00,000 to secure the payment of such amount as SAMCO might be
found liable to pay to the Custodian in respect of the claim referred to
arbitration. On September 20, 1957 the first appellant executed an agreement
for the transfer of his compensation claim amounting to Rs. 6,994. The amount
was to be repaid to the first appellant within three years with interest at the
rate of 6 per cent per annum. It was stated in the agreement that the
respondent was contemplating to form a joint stock company to own, run and
manage the mills. The respondent agreed that in the event of such a company
being formed the first appellant would have the option to purchase shares of
the said company to the extent of 50 per cent of the amount of his claim
compensation.
On August 12, 1957 the dispute between the
Custodian on one side and the two appellants and the respondent on the other,
which had been referred earlier in accordance with the arbitration clause in
the agreement of lease to 'the arbitration of other arbitrators, was referred
to the arbitration of Mr. Morarji Desai. On November 13, 1957 the respondent
and the Custodian agreed before the arbitrator that the dues of the Custodian
against the partnership be settled at Rs. 18,00,000. A consent award awarding
Rs.18,00,000 in favour of the Custodian against the partnership was made by Mr.
Morarji Desai on the following day, viz., November 14, 1957. The award was made
a rule of the court on May, 1, 1958.
366 The respondent was unable to submit to
the Central Government compensation claims to the extent of Rs.
30,00,000 within three months of the
agreement dated August 14, 1957. By April 1959 he submitted compensation claims
to the extent of Rs. 20,00,000. A supplemental agreement was executed by the
respondent and the president on April 29, 1959. In this agreement the President
acknowledged the receipt from the respondent of the sum of Rs. 20,00,000 by way
of adjustment of compensation claims. The respondent undertook to pay the
remaining amount of Rs. 30,11,000 and Rs. 18,00,000 under the award of Mr.
Morarji Desai, in all, Rs. 48,11,000. It was agreed that the aforesaid amount
would be paid by the respondent in seven annual installments. A second
supplemental agreement was executed by the President and the respondent on April
6, 1960, but we are not concerned with that. On April 21, 1960 the grant of the
Ambernath Mills was made by the President to the respondent. The same day the
respondent executed in favour of the President a mortgage of the Ambernath
Mills for the payment of Rs. 48,11,000. The sum was payable in seven equal
annual installments. On April 22, 1960 the respondent took possession of
Ambernath Mills which had been lying idle for nearly six years since June 30,
1954. On May 7, 1960 the respondent sent a circular letter to all displaced
persons whose compensation claim had been transferred to him informing them
that possession of the mills had been handed over to him by the Central
Government. They were also informed that statement of their accounts was being
prepared. One such letter was sent to the first appellant.
He also received a statement of account and
in September 1960 a cheque for Rs. 204 was sent to him by way of interest.
On October 7, 1960 the first appellant sent a
letter to the respondent complaining that his property had been attached in
execution of a decree for Rs. 271.44 which had been obtained by a creditor
against SAMCO. In this letter the first appellant hinted that he was a partner
of the respondent. The respondent in response sent to the first appellant a
cheque for Rs. 271.44. It is also stated that the respondent informed the first
appellant on telephone that he did not regard the latter as his partner. On
December 20, 1960 the two appellants filed the present suit.
It was alleged in the plaint that after the
termination of the agreement of lease by the Custodian on May 25, 1954 the two
appellants and the respondent assembled and orally agreed not to dissolve the
partnership in spite of the termination of the lease. The agreement between the
parties was further stated to be that "the partnership should be continued
for the purpose of acquiring on behalf and for the benefit of the said
partnership the properties Ex. 1 (Ambernath Mills) hereto and to exploit the
said industries". The respondent was stated to have made a representation
that he was acquiring the Ambernath Mills on behalf of the partnership and that
the agreement had been executed in the respondent's name because the Central
Government desired to deal with only one individual. It was also stated that
the respondent had admitted utilisation of a sum of Rs. 2,00,000 out of the
partnership fund for payment of earnest money. The respondent 367 being a
partner, according to the appellants, stood in a fiduciary character vis-a-vis
the appellants and was bound to protect their interest. He could not gain for
himself pecuniary advantage by entering into dealings under circumstances in
which his interests were adverse to those of the appellants. The properties and
profits acquired by the respondent were stated to be for the benefit of the
partnership also. In the plaint, as it was initially filed, the appellants
prayed for a declaration that the partnership between them and the respondent
was still subsisting on the terms and conditions set out in partnership deed
dated February 24, 1954 excepting the terms relating to the period of
partnership. Prayer was made for a declaration that the Ambernath Mills
belonged to the partnership and for rendition of the partnership accounts. By a
subsequent amendment prayer was added that the partnership be dissolved from
the date of the filing of the suit.
The respondent in his written statement
denied the alleged oral agreement between the parties on or about May 25, 1954.
According to the respondent, the partnership
stood dissolved on March 10, 1955 when the Central Government acquired the
Ambernath Mills. According further to the respondent, the funds of the
partnership were utilized for the payment of various creditors of the
partnership and after those payments were made the partnership did not have
sufficient funds to pay to the remaining creditors. With regard to the
negotiations for the acquisition of the mills, the respondent stated that the
first appellant was aware that Ambernath Mills were being acquired by the
respondent for himself alone. The respondent denied that he ever told the first
appellant that the amount of earnest money of Rs.
2,00,000 for the purchase of the Ambernath
Mills had been paid out of funds belonging to the partnership. Allegation was
also made by the respondent that the first appellant had requested that he
might be given, some benefit in the nature of appointment or agency in the
business of Ambernath Mills.
The claim of the appellant for rendition of
the accounts was stated to be barred by, limitation. In an affidavit filed on
January 11, 1961 the respondent stated that in case it was held that there was
an oral agreement of partnership between the parties, the same should be taken
to have been dissolved.
Learned trial judge held that the appellants
had failed to prove that there was an oral agreement between the parties on or
about May 25, 1954. It was further held that there was no agreement, express or
implied, to form a partnership for acquiring the mills and for carrying on the
business thereon. The appellants were held not entitled to have the mills
treated as partnership assets by invoking principles enunciated in section 88
of the Indian Trusts Act, to which reference had been made on behalf of the
appellants. The learned judge also held the appellants claim for rendition of
accounts to be barred by limitation because in his view the partnership had
stood dissolved on May 25, 1954 when the agreement of lease was cancelled. in
any case, according to the learned judge, the partnership must be deemed to
have been dissolved either on January 14, 1957 when the suit filed by the two
appellants and the respondent against the Custodian and the Cent368 ral
Government for permanent injunction was finally dismissed in appeal by a Division
Bench of the Bombay High Court or on August 30, 1957 when the period of the
lease came to an end.
In appeal before the Division Bench the
following four contentions were advanced on behalf of the appellants :
"(1) that on 25th May 1954 the parties
expressly agreed to continue their partnership for acquiring the Mills and
exploiting them, that a partnership at will thus came into existence between
them, and that therefore the Mills acquired by the defendant car his agreement
with the President of India dated 14th August 1957 and the subsequent grant by
the President of India on 21st April 1960 must be held to be an asset of the
said partnership;
(2)that if such an express agreement is held
not to have been proved, an implied agreement to the same effect should be
inferred from the conduct of the parties and the correspondence between them;
(3)that, even supposing that there was no
express or implied agreement as stated above, the rights acquired by the
defendant as a result of his agreement with the President of India dated 14th
August 1957 and the subsequent Presidential grant are impressed with a trust in
favour of the partnership under section 88 of the Indian Trusts Act; and
(4)that, even if it is held that the Mills are no longer an asset of the partnership,
the plaintiffs are still entitled to accounts of the partnership which
admittedly existed between them and the defendant for working the Mills under
Agreement of lease dated 30th August 1952." The learned judges
constituting the Division Bench repelled all the contentions advanced on behalf
of the appellants and substantially agreed with the findings of the trial
judge.
On the question of the limitation, the
learned judges held that the partnership had been dissolved at the latest on
November 10, 1955 when all the attempts of the partners to get the Custodian's
order dated May 25, 1954 set aside came to an end with the decision of the
Supreme Court. The present suit for rendition of accounts brought on December
20, 1960' more than three years after the date of the dissolution of the
partnership was held to be barred by limitation. In the result the appeal was
dismissed.
In appeal before us Mr. S.T. Desai on behalf
of the appellants has frankly, conceded that he is not in a position to
challenge the concurrent findings of the trial judge and the appellate bench
that the appellants had failed to prove that on May 25, 1954 the parties had
expressly agreed to continue the partnership for acquiring the mills and
,exploiting them. Although Mr. Desai indicated at the commencement 369 of the
arguments that he would challenge the finding of the appellate bench that the
rights acquired by the respondent as per agreement dated August 14, 1957 with
the President and the subsequent Presidential grant are impressed with trust in
favour of the partnership under section 88 of the Indian Trusts Act, no
arguments were ultimately advanced by him on that score. Mr. Desai has,
however, challenged the finding of the trial judge and the appellate bench that
no implied agreement as alleged by the appellants could be inferred from the
material on record. The main burden of the arguments of' Mr. Desai, however,
has been that the appellants were entitled to the accounts of the partnership
which admittedly existed between the parties as per partnership agreements
dated August 30, 1952 and, February 24, 1954. According to Mr. Desai, there had
been not dissolution of the firm prior to the institution of the suit and the
appellants' suit for the rendition of accounts was not barred by limitation.
The High Court, it is urged, was in error in holding to the contrary. The above
contentions have been controverted by Mr. Cooper on behalf of the respondent
and, in our opinion, are not well-founded.
We may, first deal with the question as to
whether the implied agreement as alleged by the appellants can be inferred from
the material on record. In this respect Mr.
Desai has submitted that the appellants no
longer claim any interest in the ownership of Ambernath Mills which. now vest
in the respondent. It is, however, urged that an agreement can be inferred from
the conduct of the parties that Ambernath Mills were to be run by the
respondent in partnership with the appellants, even though the ownership of the
same might vest in the respondent. In this connection we find that no case of
such an implied agreement was set up in the trial court, either in the plaint
or otherwise, nor was such a case set up in appeal before the Division Bench.
What was, actually contended was that the agreement was for acquiring the mills
as an asset of the partnership. The above stand of the appellants could plainly
be not accepted when one keeps in view the agreement of lease dated August 30,
1952 as well as other documents on record. The said agreement of lease shows
that Ambernath Mills would become the absolute property not only of the
appellants and the respondent but of all persons who were to be associated with
the lessees in the ownership of the proprietary interest in proportion to the
total compensation payable to each of them. The agreement of lease further
contemplated that the lessee rights of the two appellants and the respondent
were to be distinct from the proprietary interest in the demised premises and
that the lessees were at liberty, in spite of the transfer of proprietary
interest, to continue the lease for the unexpired residue of the term on the
terms and conditions of the lease and payment of rent prescribed there under.
The respondent submitted representation, on August 9, 1954 on behalf of SAMCO to
the Custodian for the restart of the mills and along with it the respondent
sent copies of letter of authority and particulars of verified claims of 30
displaced persons. It is implicit in the representation that in case Ambernath
Mills was transferred, the same would vest in all the 30 displaced persons
whose claims were submitted, 370 There are two documents which run counter to
the stand taken oil behalf of the appellants in this Court that there was an
implied agreement that in case the respondent acquired the ownership of the
mills, the mills would be worked by the respondent in partnership with the
appellants. One of those documents is agreement dated September 20, 1957 which
was signed by the first appellant and the respondent a day before the respondent
executed bond in favour of that appellant in view of the fact that the first
appellant agreed to have his claim compensation amounting to Rs.
6,994, adjusted towards the price of
Ambernath Mills. It was stated in the agreement dated September 20, 1957 that
the respondent was contemplating the formation of a joint stock company to own,
run and manage the mills and it was agreed between the parties that in the
event of such company being formed, the first appellant would have the option
to purchase shares of the said company to the extent of 50 per cent of the
amount of the adjusted claim compensation. In case the option was exercised in
favour of the purchase of the shares of the company, the respondent was to
ensure that the said shares would be allotted to the first appellant at par. It
was further agreed that if the shares applied for or any proportion thereof
were not allotted to the first appellant by the said company, the respondent
would not in any way be liable to the first appellant on that account.
In the bond the respondent agreed to pay to
the first appellant interest at the rate of 6 per cent on the amount of
compensation from the date of the adjustment of the first appellant's claim
,compensation. Had the first appellant any interest in the Ambernath Mills
which were, being acquired by the respondent, there could arise no occasion for
the execution of the agreement dated September 20, 1957 and the bond dated
September 21, 1957. All that was agreed by the respondent in those two
documents was that in case he promoted a company for owning, running and
managing of the Ambernath Mills, the first appellant would get a share of the
value of half of his ,claim compensation of Rs. 6,994.
The said amount when compared to the price of
Ambernath Mills was wholly insignificant. No question could arise for the
respondent borrowing money from the first appellant for payment of price of the
mills in case the acquisition of the mills was for the benefit of the
respondent as well as the appellant. it may also be stated that the interest on
account of the above, compensation was duly paid by the respondent to the first
appellant.
Another document which has a bearing in the
above context is letter dated December 18, 1959 which was addressed by the
first appellant to the Collector of Bombay in connection with the recovery of
arrears of sales tax. The first appellant in that letter stated that the
responsibility for the payment of such arrears of sales tax was that of the
respondent and the first appellant was no more in picture.
The above letter shows that the first
appellant repudiated his liability for the payment of the sales tax by
disclaiming his connection with the ,business in question.
Our attention has been invited by Mr. Desai
to the following observations contained in the judgment of the appellate bench
:
"There is no dispute between the parties
that the partners met on 25th May 1954, after the Custodian's order 371
terminating the Agreement of lease and decided that they should try to have the
Custodian's order set aside by pursuing the appeal in the Supreme Court as well
as by making representations to the Ministry of Rehabilitation in the Central
Government. It is also not disputed that either on 25th May 1954 or soon
thereafter the parties decided that they should also try to acquire the
proprietary interests in the Mills by relying on clauses 17 to 21 of the
Agreement. Of Lease. What is disputed is whether it was agreed between the
parties that, after acquiring the proprietary interest in the Mills, the
business of the Mills should be carried on in partnership between the parties.
It is the defendant's case that the
proprietary interest in the Mills was sought to reacquired by the partners for
certain incidental advantages but that it was never intended that the Mills
after acquisition should be run in partnership under the terms agreed in the
partnership deed of 24th February 1954." The above observations may have
some bearing on the question of the express agreement, but so far as such an
agreement is concerned,, it has already been pointed out above that the
concurrent findings of the trial judge and the appellate bench have not been
challenged before us. No inference of implied agreement mentioned by the
learned counsel for the appellants can be drawn from the above observations.
We are, therefore, of the view that no
inference of the implied agreement referred to by Mr. Desai can be drawn from
the material on record.
So far as the question is concerned as to
whether the claim for rendition of accounts was within time, we find that
according to clause 16 of the partnership deed dated August 30, 1952 the period
of partnership was fixed at five years, being the period of the lease, Clause
17 of the deed of partnership dated February 24, 1954 provided that the
"period of partnership shall be the outstanding period of such
lease". The possession of Ambernath Mills under the agreement of lease was
delivered on August 31, 1952. The period of five years of the lease was thus to
expire on August 30, 1957. As the partnership was for a fixed period, firm
would in normal course dissolve on the expiry of the period of five years on
August 30, 1957. No agreement between the partners to keep the firm in
existence after the expiry of the fixed term of five years has been proved.
According to section 42 of the Indian
Partnership Act, subject to contract between the, partners a firm is dissolved(a)
if constituted for a fixed term, by the expiry of that term;
(b) if constituted to carry out one or more
adventures or undertakings by the completion thereof;
(c) by the death of a partner; and (d) by the
adjudication of a partner as an insolvent." The above provision makes it
clear that unless some contract between 372 the partners to the contrary is
proved, the firm if constituted for a fixed term would be dissolved by the
expiry of that term. If the firm is constituted to carry out one or more
adventures or undertakings, the firm, subject to a contract between the
partners, would be dissolved by the completion of the adventures or
undertakings. Clauses (c) and (d) deal with dissolution of firm on death of a
partner or his being ,adjudicated insolvent.
It was indicated in the agreement of
partnership that the period of partnership had been fixed at five years because
that was the period ,of the lease of Ambernath Mills. The, lease, however, ran
into rough weather. On February 12, 1954 the Custodian served notice on the
respondent and the two appellants to show cause why the agreement of lease
should not be cancelled in accordance with the terms of that agreement on
account of the breach of conditions in the matter of payment of installment of
rent and the failure of the respondent and the appellants to deposit or furnish
bank guarantee for the amount of Rs. 7,00,000. The respondent and the
appellants challenged the validity of the above notice by means of a writ
petition and, though they succeeded before a single judge, the appellate bench
of the Bombay High Court upheld the validity of the notice. On May 25, 1954 the
Custodian cancelled the lease of Ambernath Mills and on June 30, 1954 got
possession of the mills. The respondent and the appellants assailed the
decision of the appellate bench of. the Bombay High Court in this Co-art, but
this Court also took the view as per judgment dated November 10, 1955 that
there was no legal infirmity in the notice for the termination of the lease
issued by the Custodian. After the above judgment of this Court, whatever hope
or expectation the partners of SAMCO had of running Ambernath Mills on lease
under the agreement of lease dated August 30, 1952 came to an end and were
extinguished.
In the meantime, as already stated earlier,
the possession of Ambernath Mills was handed over by the partners of SAMCO to
the ,Custodian on June, 30, 1954. On March 10, 1955 the Central Government
issued notification under section 12 of the Displaced Persons (Compensation and
Rehabilitation) Act, 1954 for acquiring the Mills. The mills were then
advertised for sale. The partners of SAMCO having been thwarted for good in
their efforts to get back the mills on lease now made an effort to acquire the
ownership of the mills in accordance with clauses 17 to 21 of the agreement of
lease. Suit was accordingly brought by the respondent and the appellants for
permanent injunction restraining the Central Government and the Custodian from
selling the Ambernath Mills to any person other than the partners of SAMCO. The
suit was dismissed by the City Civil Court and the appeal filed by the partners
of SAMCO too was dismissed by a Division Bench of the Bombay High Court on
January 14, 1957. The Division Bench held 'that the agreement of purchase
contained in clauses 17 to 21 of the agreement of lease was indefinite and
vague and such agreement of sale was not capable of specific performance. It
was further held that in View of notification dated March 10, 1955 the Central
Government acquired the mills free from all encumbrances. The rights of the
partners of SAMCO which were in the nature of an encumbrance were 373 held to
be no longer enforceable. No appeal was filed against the above decision of the
Bombay High Court. As such, the aforesaid judgment became final. Any
expectation which the partners of SAMCO could have of acquiring the ownership
of Ambernath Mills under clauses 17 to 21 of the agreement of lease was also
thus dashed to the ground.
View was expressed by the learned trial judge
that the firm of SAMCO stood dissolved on May 25, 1954 when the lease was
cancelled. Another date of dissolution, according to the learned judge, could
be January 14, 1957 when the suit filed by the partners of that firm against
the Custodian and the Central Government for permanent injunction was finally
dismissed by the High Court. The appellate bench expressed the view that the
firm of SAMCO stood dissolved on November 10, 1955 when the Supreme Court
dismissed the appeal regarding the validity of notice. It is, in our opinion,
not necessary to dilate upon this aspect of the matter because in any case
there can be no manner of doubt that the firm of SAMCO got dissolved and was
not subsisting after August 30, 1957 which was the date on which the period of
five years for which the partnership had been formed came to an end. The,
question as to-whether the firm got dissolved earlier than August 30, 1957 is
purely academic and is not of much significance, because in any event in the
absence of a contract to the contrary there could be no survival of the firm
after August 30, 1957 when the period of partnership expired. Calculating the
period of limitation even from that date, the suit for rendition of accounts
brought by the appellants on December 20, 1960 was barred by limitation.
It is not disputed that the period of
limitation for such a suit is three years from the date of dissolution.
Mr. Desai has referred to letter dated
November 17, 1955 addressed by the respondent on behalf of SAMCO to the,
National Bank of India Bombay requesting for the despatch of three bales of
wool tops to Ludhiana. In this letter an assurance was held to the Bank of
cordial relations for the future expected business. Reference has also been
made by Mr. Desai to the statement of the respondent in cross-examination that
up to the end of December 1956 the firm was actively interested in acquiring
the mills. The above letter and statement, in our opinion, would not militate
against the inference that the firm stood subsequently dissolved on August 30,
1957. As already mentioned above, no agreement to keep the firm in existence
after the expiry of the fixed period of partnership has been proved on the
record.
Reference has also been made on behalf of the
appellants to the consent given by the respondent on behalf of SAMCO on
November 13, 1957 to the award of Rs. 18,00,000, by Mr.
Morarji Desai in favour of the Custodian
against SAMCO. It is urged that this document would go to show that the firm of
SAMCO had not been dissolved before that date. We are unable to agree. The
arbitration proceedings had been started as a result of application under
section 20 of the Arbitration Act filed, on April 21, 1955 when SAMCO was in
existence and was a running concern. The arbitration proceedings related to a
claim of the Custodian of Rs.
30,00,000 on account of the price of stocks
of raw material, stores and other movables as well as 374 about the arrears of
rent. Counter-claim had also been made by SAMCO against the Custodian for a sum
of Rs. 17,67,080 as per written statement dated December 18, 1956 filed in
arbitration proceedings. The consent which was given by the respondent on
November 13, 1957 was with a view to get the dispute between SAMCO with the
Custodian finally settled.
This was a necessary step for the purpose of
winding up the affairs of SAMCO and to complete transaction of arbitration
proceedings which had been begun but remained unfinished at the time of
dissolution. According to section 47 of the Indian Partnership Act, after. the dissolution
of a firm the authority of each partner to bind the firm, and the other mutual
rights and obligations of the partners, continue notwithstanding the
dissolution, so far as may be necessary to wind up the affairs of the firm and
to complete transactions begun but unfinished at the time of the dissolution,
but not otherwise. The word "transaction" in section 47 refers not
merely to commercial transaction of purchase and sale but would include also
all other matters relating to the affairs of the partnership. The completion of
a transaction would cover also the taking of necessary steps in connection with
the adjudication of a dispute to which a firm before its dissolution is a
party. The legal position in this respect has been stated on page 251 of Lindley
on Partnership (Thirteenth Edition) as under:
"Notwithstanding a dissolution each
partner can pay, or receive payment of, a partnership debt; for it is clearly
settled that payment by one of several joint debtors, or to one of several
joint creditors, extinguishes the debt irrespective of any question of
partnership.
go, again, it has been held that a continuing
or surviving partner may issue a bankruptcy notice in the firm name in respect
of a judgment obtained before the dissolution, and that notice to him of the
dishonour o f a bill of exchange is sufficient, and that he can withdraw a
deposit or sell the partnership assets, or pledge them for the purpose of
completing a transaction already commenced, or of securing a debt already
incurred, or the over-draft on the partnership current account at the
bank." The proposition, in our opinion, cannot be disputed that after
dissolution, the partnership subsists merely for the purpose of completing
pending transactions, winding up the business, and adjusting the rights of the
partners; and for these purposes, and those only, the authority, rights, and
obligations of the partners continue (see page 573 of Halsbury's Laws of
England Third Edition Vol. 28). We would, therefore, bold that the consent
given by the respondent on November 13, 1957 to the award of Mr. Desai would
not detract from the conclusion that the firm of the parties stood dissolved on
the expiry of the fixed period of partnership, viz., August 30, 1957.
The proposition of law referred to by Mr.
Desai that a dissolution does not necessarily follow because a partnership has
ceased to do business would not be of any material help to the appellants
because we are not basing our conclusion of the dissolution of the firm of the
parties upon the fact that the partnership bad ceased to do business.
375 On the contrary, we have arrived at the
above conclusion in accordance with the principle of law that a firm
constituted for a fixed term shall stand dissolved, in the absence of a
contract to the contrary, on the expiry of that term.
Likewise, the appellants can derive no help
from the decision of the Judicial Committee in Sathappa Chetty & Ors. v. S.
N. Subrahmanyan Chetty & Ors.(1) The said case did not relate to a firm
constituted for a fixed term and no question arose in that case of a firm
dissolving on the expiry of the fixed term of partnership.
Our attention has also been invited to the
correspondence between the first appellant and the respondent during the period
from June to September, 1957. These letters reveal that the first appellant
entertained hopes and expectation of deriving some benefit in case the
respondent succeeded in acquiring the Ambernath Mills. The exact nature of the
benefit was not, however, specified in the letters. The respondent in his
replies while not belying those hopes and expectations took care not to make
any commitment. After, however, the respondent succeeded in acquiring the
mills, there developed coolness in his attitude towards the first appellant.
This circumstance must necessarily have caused disappointment and
disillusionment to the first appellant.
The respondent, it seems, kept some kind of
cannot dangling before the first appellant during the delicate stage of his
negotiations with the Government for the acquisition of the mills lest the
first appellant did something to sabotage those efforts. After acquisition of
the mills by the respondent, his attitude changed and he gave a cold rebuff to
the first appellant. The above conduct of the respondent may have a bearing on
the question of the award of costs, but it cannot affect our decision on the
point as to whether the suit is within limitation or not.
We, therefore, dismiss the appeal but in the
circumstances without costs.
P.B.R. Appeal dismissed., (1) AIR 1927 P.C.
70.
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