K.P.A.
Vellayappa Nadar Vs. Bhagirathi Ammal & Ors [1996] INSC 1405 (6 November 1996)
K. Ramaswamy,
G. B. Pattanaik
ACT:
HEAD NOTE:
O R D
E R
Substitution
allowed.
The
decision impugned herein is a reversing judgment of the Madras High Court in
Appeal No.180/76, dated April
3, 1980. This appeal
by special leave relates to an action which took place between the filing of
the suit by the respondent for dissolution and rendition of accounts by the
appellants.
The
admitted position is that one N.A.P. Alagiri Raja, son of Pappu Raja, and Raja Ramalinga
Raja, two brothers and the appellant, K.P.A. Vellayappa Nadar a stranger, since
dead, admittedly, were partners of "N.A. Pappuraja Sons" started way
back in 1943. The partnership agreement was reduced to writing for the first
time under Ex.A-2, dated March
31, 1954. Another
admitted fact is that on February
15, 1970, another
partnership was constituted under Ex.B-1 consisting of the first two partners
and their sons, together four, with the same partnership business in the same
place and with the same registrations number of the partnership firm with the
Registrar of the Firms. Raja Ramalinga Raja died on May 31, 1972. Thereon, the respondent laid the suit for dissolution of
the partnership firm and for rendition of accounts by the appellant on April 26, 1973. The case of the appellant is that
due to his old age, viz., 70 years as on February 14, 1970, there was mutual agreement by
which the appellant had stepped out from the partnership business leaving all
assets and liabilities with the two partners. His right to share in the
goodwill was mutually agreed to be set-off against liabilities falling within
his share. The partnership under Ex.A-2 mutually stood dissolved on February 14, 1970 settling the accounts between the
partners. The new partnership came into existence on February 15, 1970 under Ex.B-1. Therefore, there is
no liability on his part to render any accounts or to bear any losses incurred
by the new partnership firm under Ex.B-1 to which he was not a member on and
from February 15, 1970. The trial Court recorded the
findings as under:
"The
question relating to the goodwill and Vilasam and fixed assets of the business
of "Pappuraja and Sons" were discussed. In the end, in view of all
these facts, it was agreed
(1) that
the first plaintiff and his brother should take over the business as a running
concern; and
(2)
that the amounts shown as debits against the defendant should be considered to
have been wiped out as having been set out against this defendant's share in
the goodwill and in the share of profits really made for the above 2 years. It
was on this understanding that the firm was dissolved on 14.2.1970 by consent
of all parties concerned. The first plaintiff and his brother and others from their
family started their business in the same vilasam with the same R.C. No. and in
the same premises from 15.2.1970 in pursuance of the above conclusion. Thus,
the firm was dissolved on 14.2.1970 itself with no need whatsoever for taking
any account in respect of the dissolved firm in the above circumstances."
On the basis of this finding the trial Court came to the conclusion that the
partnership firm under Ex.A-2 stood dissolved with the settlement of accounts.
The appellant has nothing to do with the business run by the respondent-
plaintiffs after Ex.B-1 dated February 15, 1970
was entered into among the respondent-plaintiff and the deceased Raja Ramalinga
Raja and other. The trial Court also found thus:
"No
document was filed to show whether the defendant along with the plaintiffs
signed in the subsequent returns. On an analysis of the entire evidence, it is
clear that the old firm was dissolved on 14.2.1970 with the consent of all the
partners and the plaintiffs have started a new partnership as mentioned in
Ex.B-1 and they are continuing the same business of the old firm."
However, no documents were filed to show whether the defendant along with the
plaintiffs signed in the subsequent returns. On the analysis of the entire
evidence, it is clear that the old firm was dissolved on 14.2.1970 with mutual
consent of all he partners and the plaintiffs had started a new partnership
firm as mentioned in Ex.B-1 and they continued the same business of the old
firm. The High Court has proceeded on the premise that though the old firm was
dissolved, thereby, the trading activity came to a stop and the new firm
started doing business, may be of the same nature, it could not be concluded
that the old firm automatically stood dissolved unless there was a dissolution
and settlement of accounts. In this case, since it was a profit making
business, it was unlikely that the appellant would have agreed for the
dissolution. In support thereof, the High Court placed reliance on the
income-tax returns, Ex.A-4 to A-8 for the years 1966 to 1970-71. On that basis,
it was held that the firm stood dissolved with the demise of one of the
partners, namely, Raja Ramalinga Raja on May 31, 1972; there was no settlement
of accounts; therefore, the appellant was liable to render account for the
profits and losses after the settlement of accounts and to bear the necessary
losses proportionate to his share in the partnership firm.
The
question is: whether the view taken by the High Court is correct in law. We
have gone through the evidence to find whether the view taken by the High Court
could be supported. It is seen that admittedly Ex.A-2, partnership firm
consists of the aforesaid two persons and the appellant. On February 15, 1970,
another partnership firm under Ex.B-1 was constituted consisting of the two
partners and their sons. The new firm started doing the same business in the
same premises under the same registration number of the partnership with the
Registrar of the Firms. It is true, as rightly pointed out by the High Court,
that in law, mere cessation of the trading activity does not automatically
result in dissolution of a partnership firm leaving behind no rights and the
liabilities unless it was dissolved and accounts settled. It needs no
reiteration. In this case it is seen that the respondents have under Ex.B-1
constituted new partnership firm and continued the same business which the
first two partners and the appellant had carried on. It is the specific case,
as accepted by the trial Court, and in the circumstances we think it quite
reasonable to reach the conclusion that the appellant due to his old age, had
stepped out from the business, foregoing hi right to share in the goodwill of
the firm and the partners had agreed to take over the old partnership in
consideration of setting off of losses, if any, from the business the amount
payable towards the share of the appellant in the goodwill of the firm etc.
Consequently, the partnership firm mutually stood dissolved on February 14,
1970. Consequently, the new partnership had come into existence under Ex.B-1 on
February 14, 1970 to which admittedly the appellant was not a partner; nor they
claimed that he was being paid any profits out of the business carried on
thereafter. Under those circumstances, the High Court was not right in taking
into consideration of Ex.A-4 to A-10, the returns and other documents in
concluding that he was a partner in the partnership subsequent to the
accounting year 1970-71. The only relevant evidence that could be taken into
account is that if any returns were signed or acknowledged by the appellant
subsequent to February 1970, namely, accounting years 1971-72, 1972-73 that
would be relevant evidence. It is not the case that any acknowledgement of his
liabilities as a partner of the firm is shown. Under these circumstances, the
High court was not right in concluding that the old firm constituted under
Ex.A-2 was subsisting as on the date of the death of Raja Ramalinga Raja on
February 29, 1972 and consequently, the appellant is liable to render account
for the same.
The
appeal is accordingly allowed. The judgment ad decree of the High Court stand
set aside and that of the trial Court stand confirmed, but in the
circumstances, without costs.
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