There is a clear distinction between ‘retirement of a partner’ and
‘dissolution of a partnership firm’. On retirement of the partner, the
reconstituted firm continues and the retiring partner is to be paid
his dues in terms of Section 37 of the Partnership Act. In case of
dissolution, accounts have to be settled and distributed as per the
mode prescribed in Section 48 of the Partnership Act. When the
partners agree to dissolve a partnership, it is a case of dissolution
and not retirement [See – Pamuru Vishnu Vinodh Reddy v.
Chillakuru Chandrasekhara Reddy and Others, (2003) 3 SCC
445]. In the present case, there being only two partners, the
partnership firm could not have continued to carry on business as
the firm. A partnership firm must have at least two partners. When
there are only two partners and one has agreed to retire, then the
retirement amounts to dissolution of the firm [See – Erach F.D.
Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724].
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 6659-6660 OF 2010
GURU NANAK INDUSTRIES, FARIDABAD Vs AMAR SINGH
SANJIV KHANNA, J.
Dated:MAY 26, 2020.
Four persons, including two brothers, Swaran Singh and
Amar Singh, both of whom have since died and are represented by
their legal representatives, had constituted a partnership firm –
Guru Nanak Industries, on 2nd May 1978. On 6th May 1981, a fresh
partnership deed was executed between Swaran Singh and Amar
Singh as the other two partners had resigned. The partnership
firm was primarily in the business of manufacture and sale of print
machinery for paper, polythene etc. Initially, profits and losses
were to be divided in the ratio of 69:31 between Swaran Singh and
Amar Singh. However, with effect from 1st April 1983, profit and
loss sharing ratio was altered between Swaran Singh and Amar
Singh to 60:40 respectively.
2. On 29th March 1989, Guru Nanak Industries and Swaran Singh
filed a civil suit against Amar Singh claiming that the latter had
retired from partnership with effect from 24th August 1988 and had
voluntarily accepted payment of his share capital of
Rs.89,277.11p. In addition, he had been advanced loan from the
funds of the partnership firm on the same date. Amar Singh had
agreed that he would not be entitled to profits and liabilities of the
firm. In support, reliance was placed upon intimation dated 5th
October 1988 sent by Amar Singh to Bank of India, the bankers of
the partnership firm. It was stated that Amar Singh was paid
amounts of Rs.1,00,000/- and Rs.50,000/- by way of pay orders
and another amount of Rs.1,00,000/- in cash for which he had
executed receipt dated 17th October 1988 (Exhibit P-9). Further,
Amar Singh, after retirement, had floated a proprietorship concern,
namely, Guru Nanak Mechanical Industries with effect from 14th
September 1988 and was manufacturing and selling the same
machinery.
3. Amar Singh contested the suit and on 29th April 1989, filed a suit
for dissolution of partnership and rendition of accounts. The plea
and contention of Amar Singh was that he had never resigned.
Some disputes had arisen between him and Swaran Singh on 19th
August 1988 when he had written a letter to the bankers to stop
operation of the bank account. Subsequently, he had written
another letter dated 24th August 1988 (Exhibit P-5) as a partner,
which letter was also signed by Swaran Singh as a partner, stating
that the dispute between the partners had been settled and the
bank may allow operation of the account. Amar Singh had pleaded
that the receipt dated 17th October 1988 is forged and has been
manipulated as he had signed and given papers to Swaran Singh.
4. The trial court dismissed the suit filed by Amar Singh and partly
decreed the suit filed by Guru Nanak Industries and Swaran Singh
primarily by relying upon letter dated 24th August 1988 (Exhibit P-5)
and also the receipt dated 17th October 1988 (Exhibit P-9)
observing that there is discrepancy in the two versions given by
Amar Singh, the first version being that his signature on the letter
dated 17th October 1988 (Exhibit P-9) was forged and the second
version being that the receipt had been manipulated by adding the
last sentence.
5. Two appeals preferred by Amar Singh were accepted by the first
appellate court observing that the receipt dated 17th October 1988
(Exhibit P-9) was certainly manipulated by adding the last
sentence. Letter dated 24th August 1988 (Exhibit P-5), in fact,
supported the case of Amar Singh that he had not resigned as the
letter was signed by both Amar Singh and Swaran Singh, wherein
Amar Singh has been described as a partner. Official records in
the Sales Tax Department and Income Tax Department also
support the case of Amar Singh that the partnership firm was not
dissolved on 24th August 1988. Accordingly, Amar Singh was held
to be entitled to the prayer for partition of movable and immovable
property wherein 40% belonged to Amar Singh and 60% belonged
to Swaran Singh. The accounts would be rendered and settled as
on the date of institution of the suit for dissolution of partnership,
that is, 29th April 1989. Amar Singh would also be entitled to
interest @ 9% per annum.
6. Swaran Singh, who had died when the civil suits were pending
before the trial court and represented by his widow, filed two
appeals before the Punjab and Haryana High Court which have
been dismissed by the impugned judgment dated 18th May 2009.
7. Having heard counsel for the parties and having perused the
relevant documents and oral evidence, we are not inclined to
interfere with the findings recorded by the first appellate court,
which have been affirmed by the High Court as they are born out
from the records. Exhibit P-5, a letter dated 24th August 1988, was
individually signed by both Amar Singh and Swaran Singh clearly
stating that they were partners of Guru Nanak Industries. By this
letter, Amar Singh had requested the bank to start operation of the
account of the partnership firm stating that the disputes between
the partners had been settled. The subsequent letter dated 5th
October 1988 relied by the appellants and written by Amar Singh
states that there has been mutual understanding and agreement
between him and Swaran Singh and as a result he had left the firm
with effect from 24th August 1988 and, therefore, he would not be
responsible in the event of any loan being granted after 24th August
1988. This letter also records that Amar Singh ‘had to completely
withdraw his share and accounts’.
8. The receipt Exhibit P-9 dated 17th October 1988, which is a
disputed document, reads as under:
“Received with thanks a sum of Rs.1,00,000/- (Rupees
One Lac only) by cash from S. Swaran Singh, Mg/
Partner of M/s. Guru Nanak Industries (Regd.), Plot
No. C.P.-6&7, N.H.5, Rly. Road, Faridabad (Haryana)
on account of part payment of the settlement made
between both the partners of firm. The above amount
is being received by the undersigned with regard to
dissolution of our partnership on 24.8.1988. With the
receipt of this amount my total amounts are settled.
Nothing is due to me from S. Swaran Singh & his firm.
Civil Appeal Nos. 6659-6660 of 2010
There is a contradiction in the earlier portion and the last
sentence of the said receipt. The first portion refers to payment of
Rs.1,00,000/- from Swaran Singh, partner of Guru Nanak
Industries, on account of part payment of settlement between the
two partners. The last sentence does not gel and, in fact,
contradicts the first portion. The manipulation is apparent from the
photocopy of the receipt that has been placed on record as
Annexure-13/A with the documents. The words ‘retiring partner’
have been typed later on. They also cannot be reconciled with the
subsequent line, that is, “For Guru Nanak Industries (Regd.)”.
9. Amar Singh accepts that he had received payment of
Rs.1,00,000/- and Rs.50,000/- by way of demand drafts. We
would accept that Amar Singh had also received payment of
Rs.1,00,000/- in cash. Amar Singh, in his written statement, had
referred to three immovable properties, viz. CP No. 6&7,
Neighbourhood No.5, Railway Road, N.I.T, Faridabad; plot situated
in Timber Market, Parvesh Marg, Railway Road, Faridabad –
121002; and Plot No.8, measuring 4098 sq.yards allotted by HUDA
situated in Industrial Area, Sector-5, Faridabad . In addition, as per
Amar Singh, the partnership firm had constructed factory sheds on
two properties. Amar Singh, in his written statement, had given
Civil Appeal Nos. 6659-6660 of 2010
details of the machinery, finished goods and material, stock in
trade, vehicles etc. In addition, he had furnished particulars of
different FDRs having maturity value of Rs.7,71,920/-. It is claimed
that the partnership firm has goodwill of more than Rs.10,00,000/-.
10. Sukhdev Singh (PW-2), s/o. Swaran Singh (who had died before
he would enter the witness box), in his cross-examination, has
accepted that the firm was the owner of plot Nos. CP 6&7, NH-5,
Faridabad and Plot No.8, Sector-5 measuring 4098 sq.yards. He
could not recollect the machinery as on date of dissolution, that is,
24th August 1988. He could not deny the suggestion that at the
time of dissolution the value of the factory plots was Rs.25,00,000/-
each or that the goodwill of the firm was at least Rs.10,00,000/-.
He did not know whether his father had encashed FDRs of
Rs.77,000/- (sic – Rs.7,77,000/-) in the name of the partnership
firm. However, he accepted as correct that the value of the
machinery owned by the firm on the date of dissolution could be
Rs.17,00,000/-, though he was not sure. Similarly, he could not
answer whether the value of the finished goods or furniture and
fixtures, on the date of dissolution, was Rs.17,00,000/- and
Rs.17,50,000/- respectively and that stock in hand was
Rs.3,60,000/-.
Civil Appeal Nos. 6659-6660 of 2010
11. The primary claim and submission of the appellants is that Amar
Singh had resigned as a partner and, therefore, in terms of clause
(10) of the partnership deed (Exhibit P-3) dated 6th May 1981, he
would be entitled to only the capital standing in his credit in the
books of accounts. However, the argument has to be rejected as
in the present case there were only two partners and there is
overwhelming evidence on record that Amar Singh had not
resigned as a partner. On the other hand, there was mutual
understanding and agreement that the partnership firm would be
dissolved. This is apparent from even the version put forward by
Swaran Singh and deposed to by his son, Sukhdev Singh (PW-2).
Even the letter dated 5th October 1988 refers to the fact that Amar
Singh is to completely withdraw the share and accounts which
means that the things were yet to be settled. The receipt Exhibit
P-9 dated 17th October 1988 refers to part payment of
Rs.1,00,000/- towards settlement between the two partners. It also
refers to the date of dissolution as 24th August 1988, which clearly
indicates that payments were still to be made whereupon the two
sides would have completely severed their relationship although
there was a mutual agreement that the date of dissolution was 24th
August 1988.
Civil Appeal Nos. 6659-6660 of 2010
12. There is a clear distinction between ‘retirement of a partner’ and
‘dissolution of a partnership firm’. On retirement of the partner, the
reconstituted firm continues and the retiring partner is to be paid
his dues in terms of Section 37 of the Partnership Act. In case of
dissolution, accounts have to be settled and distributed as per the
mode prescribed in Section 48 of the Partnership Act. When the
partners agree to dissolve a partnership, it is a case of dissolution
and not retirement [See – Pamuru Vishnu Vinodh Reddy v.
Chillakuru Chandrasekhara Reddy and Others, (2003) 3 SCC
445]. In the present case, there being only two partners, the
partnership firm could not have continued to carry on business as
the firm. A partnership firm must have at least two partners. When
there are only two partners and one has agreed to retire, then the
retirement amounts to dissolution of the firm [See – Erach F.D.
Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724].
13. Therefore, in view of the aforesaid discussion, we dismiss the
appeals and uphold the judgment and decree dated 24th
September 2004 passed by the Additional District Judge,
Faridabad and sustained by the High Court, except that the date of
dissolution of the firm would be taken as 24th August 1988 and not
31st of March 1989.
14. Counsel for the appellants, at the time of arguments, had
expressed desire of the appellants to settle the matter with the
respondents – legal heirs of the Amar Singh. He had prayed for
four weeks’ time. It appears that settlement has not been possible.
The case is rather old and Swaran Singh and Amar Singh have
expired. Primarily it is a money matter where the accounts have to
be settled and payment etc. has to be made by the legal
representatives of Swaran Singh. The case record also reveals
that Amar Singh had set up his own business in September-
October 1988 in the name of Guru Nanak Mechanical Industries,
similar to the name of the partnership firm. Swaran Singh had not
objected. We would, therefore, give one more opportunity to the
parties to appear before the Supreme Court Mediation and
Conciliation Centre to explore possibility of a settlement. However,
in case of no settlement within a period of three months, the matter
would proceed before the trial court for passing of the final decree,
in accordance with law.
......................................J.
(N.V. RAMANA)
......................................J.
(SANJIV KHANNA)
......................................J.
(KRISHNA MURARI)
NEW DELHI;
MAY 26, 2020.
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