Whether the retirement of one partner amounts to the dissolution of the partnership firm if it consists of only two partners?

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.

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What is distinction between termination of partnership in case of partnership at will and specified partnership?

 In the instant case, the principal contention of the plaintiff is that the partnership was a partnership at will, which was dissolved by notice of dissolution under Section 43 of the partnership Act. Whereas the defendants have claimed that, the partnership was dissolved on the death of Dijendra Mitra, one of the partners of the partnership firm. It may be noted that Section 43 of the Partnership Act provides a mode of dissolution of partnership at will. This Section stipulates that a Partnership at will can be dissolved by any partner by giving notice in writing to all the other partners of his intentions to dissolve the firm. Section 7 of the Partnership Act defines 'partnership at will' as: "Where no provision is made by contract between the partners for the duration of their partnership, or for the determination of their partnership, the partnership is 'partnership at will'". Thus a partnership can be regarded as a partnership at will only when (1) there is no provision in the contract between the partners for the duration of their partnership and (2) there is no provision in the contract for the determination of that partnership. If either of these two conditions exists, the partnership would not be a partnership at will.

 The partnership Deed which contains a provision for duration of the partnership or for the determination of the partnership cannot be a partnership at will. As a corollary thereof, the partnership that is not a partnership at will cannot be legally terminated by a notice under section 43 of the Partnership Act. Consequently, sending of notice dated 7.2.2011 seeking dissolution of partnership is of no consequence.

23. From the terms of the Partnership Deeds, it is evident that the partnership was a specific partnership under Section 8 of the Partnership Act. In fact, contingencies under which such firm is dissolved are stipulated in Section 42 of the Partnership Act, which reads thus:

"42. Dissolution on the happening of certain contingencies-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;

(d) by the adjudication of a partner as an insolvent."

IN THE HIGH COURT OF BOMBAY

Suit No. 220 of 2013

Decided On: 21.08.2019

Manohar Daulatram Ghansharamani  Vs.  Janardhan Prasad Chaturvedi and Ors.

Hon'ble Judges/Coram:

Anuja Prabhudessai, J.

Citation: AIR 2019 Bom 283,2020(1) MHLJ 458

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Whether clauses of partnership deed will be automatically binding on legal heirs of deceased partners?

 At this stage, it is to be noticed that once the

partnership comes to an end, by virtue of death of

one of the partners, there will not be any

partnership existing in which legal representatives

of late Smt. Hashmatunnisa Begum could be taken in.

The judgment and decree obtained by late Sri Jai

Narayan Misra against late Smt. Hashmatunnisa Begum,

in pursuance of partnership deed dated 14.04.1982,

cannot bind the legal representatives of late Smt.

Hashmatunnisa Begum, as such, decree is not

executable against them. The legal representatives

of late Smt. Hashmatunnisa Begum are not the

partners of the original partnership deed dated

14.04.1982. When such legal representative are not

parties to the contract, such contract cannot confer

rights or impose obligations arising under it on any

third party, except parties to it. No one but the

parties to the contract can be entitled under it or

born by it. Such principle is known as ‘Privity of

Contract’. When the partnership stands dissolved by

operation of law under Section 42(c) of the Indian

Partnership Act, 1932, the question of execution in

pursuance of the decree does not arise. There cannot

be any contract unilaterally without acceptance and

agreement by the legal heirs of the deceased

partner. If there are any clauses in the agreement,

entered into between the original partners, against

the third parties, such clauses will not bind them,

such of the clauses in the partnership deed, which

run contrary to provisions of Indian Partnership

Act, 1932, are void and unenforceable. Such clauses

are also opposed to public policy.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3311 OF 2015

S.P. Misra Vs  Mohd. Laiquddin Khan 

Coram:

R.Subhash Reddy,J.

Dated: October 18,2019

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Whether application for appointment of arbitrator by partner of dissolved partnership firm is maintainable?

 The appellants (defendants) on being served
raised a preliminary objection contending therein
that since the partnership in question on which the
application under Section 20 of the Partnership Act
was founded was an “unregistered partnership",
therefore, in the light of the bar contained under
Section 69 (3) of the Partnership Act, the application

filed by the respondent was not maintainable,
therefore, it was liable to be dismissed as such.
8. The Civil Judge by order dated 18.03.1993
overruled the objection raised by the appellants
(defendants) and held that the application filed by
the respondent (plaintiff) is maintainable. The
appellants (defendants) felt aggrieved and filed writ
petition in the High Court at Allahabad under
Article 227 of the Constitution of India.
9. By impugned order, the High Court dismissed
the writ petition and upheld the order of the Civil
Judge, which has given rise to filing of this appeal
by way of special leave by the defendants in this
Court.
10. So, the short question, which arises for
consideration in this appeal, is whether the High
Court was justified in dismissing the appellants’
writ petition.

11. Having heard the learned counsel for the
parties and on perusal of the record of the case, we
are inclined to allow this appeal and while setting
aside the impugned order remand the case to the
High Court for deciding the writ petition afresh on
merits in the light of the observations made infra.
12. In our considered view, the need to remand
the case has occasioned because we find that the
High Court did not decide the issue, which was the
subject matter of the writ petition, keeping in view
the law laid down by this Court in the case of
Krishna Motor Service by its Partners vs. H.B.
Vittala Kamath, 1996 (10) SCC 88.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.3399 OF 2019
(Arising out of S.L.P.(C) No.21469 of 2012)

Bhagwan Das Goel Vs Pyare Kishan Agarwal 

Abhay Manohar Sapre, J.
Dated:April 04, 2019.

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Whether arbitrator can be appointed for dissolution of unregistered partnership firm?

The question, therefore, is: whether the respondent is entitled to a reference under Section 20 of Arbitration Act 1940? Admittedly, the partnership firm was not registered as required under Section 69(1) of the Partnership Act. The partnership deed does contain a clause for reference to arbitrate the disputes that should arise under the contract. The question, therefore, is: whether the exceptions to Sub-section (3) of Section 69 would apply to the facts of the case? Sub-section (3) of Section 69 envisages as under :

69. (3) The provisions of Sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect-

(a) the enforcement of any right to sue for the dissolution of a firm or for accounts or a dissolved firm, or any right or power to realise the property of a dissolved firm; or

(b) the powers of an official assignee, receiver or Court under the Presidency-towns Insolvency Act, 1909 (3 of 1909), or the Provincial Insolvency Act, 1920 (5 of 1920), to realise the property of an insolvent partner.

(Emphasis supplied)

6. The contention of Shri Javali is that since the words "other proceedings to enforce a right arising from a contract" clearly envisage that when a party to the contract seeks to enforce the right arising from the contract, the main part of Sub-section (3) stands attracted, the exceptions provided in the exclusionary clauses have no application. Therefore, the ratio in Jagdish Chandra Gupta's Case, though related to reference under Section 8 would apply to the facts of the case and that the reference is not maintainable. We find no force in the contention. The words "but shall not affect" require to be given meaning and effect thereof in the operation of the main part of Sub-section (3). But as seen, the exceptions engrafted in Sub-section (3) intend to exclude the embargo created by Sub-section (3) and intended to effectuate the exceptions enumerated therein. It is seen that the proviso given an exception stating that the main part of Sub-section (3) shall not affect (a) the enforcement of any right arising from dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm; it conferred interest to the partners, i.e. parties to the contract. Undoubtedly, Section 69 is mandatory in character and its effect is to render a suit by plaintiff in respect of a right vested in him or acquired under a contract which he entered into as a partner of a firm, whether existing or dissolved void. In other words, a partner of an erstwhile unregistered partnership firm cannot bring a suit to enforce a right arising out of a contract falling within the ambit of the main part of Section 69(3) of the Act. In Jagdish Chandra's case at page 60 this Court interpreting main part of Sub-section (3) had held that "In our judgment, the words 'other proceeding' in Sub-section (3) must receive their full meaning untrammeled by the words 'a claim of set-off. The latter words neither intend nor can be construed to cut down the generality of the words 'other proceedings'. The sub-section provides for the application of the provisions of Sub-sections (1) and (2) to claims of set-off and also to other proceedings of any kind which can properly be said to be for enforcement of any right arising from contract except those expressly mentioned as exceptions in Sub-section (3) and Sub-section (4)."

7. If the right to dissolve the firm itself is in dispute and is subject matter of the suit, necessarily in the suit for dissolution of the partnership firm, if a party to the contract of partnership seeks a reference for arbitration to resolve that dispute, it would be a right from a contract arisen in the proceedings for enforcement of the right to dissolve the firm. In that event, necessarily, the main part of Sub-section (3) stands attracted and no such reference is valid in law. But in a case where the parties have already agreed for dissolution of the partnership by mutual consent, the partnership stood dissolved. There is no dispute as regards the right arising from the contract of a firm. The dispute is only with regard to working out the rights flown from dissolution for settlement of accounts of the dissolved firm or any right or power to realise the property of the dissolved firm etc. That right would form part of the exception engrafted in Sub-section (3) of Section 69. The object intended by the legislature appears to be that in spite of the defect of non-registration and the prohibition created in the main part of non-enforceability of the right arising from a contract, the parties having worked under that contract, to the limited extent of the enforcement of a right to realise the assets, settlement of the accounts of the dissolved firm or any right or power to realise the property of the dissolved firm are exceptions engrafted therein and gives right to the parties to enforce the same, independent of the right arising from the contract. Therefore, the parties are relieved from the prohibition created by operation of Section 69.

IN THE SUPREME COURT OF INDIA

Civil Appeals Nos. 7784-85 of 1996.

Decided On: 19.04.1996

Krishna Motor Service  Vs.  H.B. Vittala Kamath

Hon'ble Judges/Coram:

K. Ramaswamy and G.B. Pattanaik, JJ.

Citation:  1996 (10) SCC 88, AIR 1996 SC 2209

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Whether arbitrator has jurisdiction to dissolve partnership firm?

 In paragraph 12 of the said judgment, the Supreme Court held that insofar the power of the arbitrator to dissolve the partnership is concerned, the law is clear where there is a clause in the articles of partnership or the agreement or the order referring all the matters in difference between the partners to arbitration, the arbitrator has power to decide whether or not the partnership shall be dissolved and to award its dissolution. The Supreme Court adverted to the judgment of the Chancellery Division in case of Phoenix vs. Pope (supra). It is held by the Supreme Court that the power of the arbitrator will primarily depend upon the arbitration clause and the reference made by the Court to it. If under the terms of the reference all the disputes and differences arising between the parties have been referred to arbitration, the arbitrator will, in general, be able to deal with all the matters, including dissolution. There is no principle of law or any provision which bars an arbitrator to examine such a question. 

57. In my view, the Supreme Court has not accepted the submission of the petitioner that the arbitrator has no power to dissolve the partnership firm specially on the ground that such dissolution is based on a ground or any other ground which renders it just and equitable to dissolve and with his power of the Court.
IN THE HIGH COURT OF BOMBAY

Arbitration Petition No. 8 of 2018 and Notice of Motion No. 43 of 2018 in Arbitration Petition No. 8 of 2018

Decided On: 13.06.2018

Yogendra N. Thakkar  Vs.  Vinay Balse and Ors.

Hon'ble Judges/Coram:

R.D. Dhanuka, J.

Citation: AIR 2018(NOC) 919 Bom

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Whether Arbitrator has power to dissolve partnership firm?

 In my view, the power of dissolution of the partnership firm under enumerated under section 44(g) on just and equitable grounds also is an action in personam and not an action in rem. Even if a firm is dissolved under section 44(g) of the Partnership Act, the decision of the arbitral tribunal would be binding upon the parties to the arbitration agreement and not the world at large. The principles laid down by the Supreme Court in case of Booz Allen & Hamilton INC. (supra) would apply to the facts of this case. I am respectively bound by the said judgment.

66. The Supreme Court in case of A. Ayyasamy vs. A. Paramasivam & Ors. (supra) has adverted to the judgment of the Supreme Court in case of Booz Allen & Hamilton INC. (supra) and has held that ordinarily every civil or commercial dispute whether based on contract or otherwise which is capable of being decided by a civil Court is in principle capable of being adjudicated upon and resolved by arbitration "subject to the dispute being governed by the arbitration agreement" unless the jurisdiction of the arbitral tribunal is excluded either expressly or by necessary implication. It is held that all disputes relating to rights in personam are considered to be amenable to arbitration while rights in rem are required to be adjudicated by Courts and public tribunals. In my view, dissolution of a partnership firm under section 44(g) of the Partnership Act on just and equitable grounds is not excluded expressly under the provisions of the Partnership Act or under the Arbitration Act, 1996 or under the arbitration agreement entered into between the parties or by necessary implication from the jurisdiction of an arbitral tribunal. The principles laid down by the Supreme Court in case of A. Ayyasamy (supra) thus would apply to the facts of this case and would assist the case of the petitioner.

IN THE HIGH COURT OF BOMBAY

Arbitration Petition No. 8 of 2018 and Notice of Motion No. 43 of 2018 in Arbitration Petition No. 8 of 2018

Decided On: 13.06.2018

Yogendra N. Thakkar Vs. Vinay Balse and Ors.

Hon'ble Judges/Coram:

R.D. Dhanuka, J.

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Whether deed dissolving partnership firm is to be registered?

The question raised in that case was whether the arbitration award, distributing assets of the firm after settlement of accounts, between partners in accordance with their shares, was compulsorily registrable under S. 17 of the Registration Act, 1908. Herein, it is to be emphasised that, no such dispute arises, since the impounding was occasioned when the document was presented for registration. Dissolution of partnership, whether it was compulsorily registrable, when the partnership assets included immovable property, was a vexed question which was finally resolved in the two decisions referred to in N. Khadervali Saheb (supra); viz., S.V. Chandra Pandian v. S.V. Sivalinga Nadar (MANU/SC/0450/1993 : (1993) 1 SCC 589) and Ratan Lal Sharma v. Purshottam Harit (MANU/SC/0003/1974 : (1974) 1 SCC 671).

9. Ratan Lal Sharma (supra) was concerned with the necessity of registration under Section 16 of the Registration Act. The dispute between the two partners was referred for arbitration, in which the partnership assets were assigned to one partner, in consideration of a specified sum. This exclusive allotment of the assets of the partnership, which included immovable property, was held to create rights in the immovable property, thus making registration compulsory. This decision was pressed to advance the contention of compulsory registration of an arbitration award which allotted the immovable properties and assets of a partnership to each of the partners in accordance with their shares S.V. Chandra Pandian (supra). The decision in Ratan Lal Sharma (supra) was distinguished in S.V. Chandra Pandian (supra) in the following manner:

"This Court while reiterating that the share of a partner in the assets of the partnership comprising even immovable properties, is moveable property and the assignment of the share does not require registration under Section 17 of the Registration Act. The legal position is thus affirmed. However, since the award did not seek to assign the share of the respondent to the appellant but on the contrary made an exclusive allotment of the partnership asset including the factory and liabilities to the appellant, thereby creating an absolute interest on payment of consideration of ` 17,000 plus half the amount of the realisable debts, it was held to be compulsorily registrable under S. 17 of the Registration Act. The Court did not depart from the principle that the share of a partner in the asset of the partnership inclusive of immovable properties, is moveable property and the assignment of the share on dissolution of the partnership did not require registration under S. 17 of the Registration Act. The decision, therefore, turned on the interpretation of the award in regard to the nature of the assignment made in favour of the appellant".

10. The essential distinction hence is in looking at whether there is an allotment of the surplus assets, on dissolution, amongst the partners. If that is so, the partners who owned the assets together, during the existence of the partnership, had a right to share in the business in accordance with their shares. On dissolution and allotment of the remaining assets, even if there is immovable property, each goes with his share, not creating any new right But when there is an assignment in favour of one or other and consideration is passed then it creates new rights on the immovable property. A deed creating such rights would have to be registered compulsorily and the creation of such right is a "release" under Article 48(b) to be stamped accordingly.

IN THE HIGH COURT OF KERALA

W.P.(C) No. 34751 of 2008

Decided On: 22.06.2015

 Vinayakrishnan Vs.Commissioner for Land Revenue

Hon'ble Judges/Coram:

K. Vinod Chandran, J.

Citation:2015 (3) KLT 214 : 2015 (3) KLJ 347 : ILR 2015 (3) Ker. 537 : 2015 (3) KHC 752

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When deed assigning property at the time of dissolution of partnership firm is liable to be stamped?

The essential distinction hence is in looking at whether there is an allotment of the surplus assets, on dissolution, amongst the partners. If that is so, the partners who owned the assets together, during the existence of the partnership, had a right to share in the business in accordance with their shares. On dissolution and allotment of the remaining assets, even if there is immovable property, each goes with his share, not creating any new right. But when there is an assignment in favour of one or other and consideration is passed then it creates new rights on the immovable property. A deed creating such rights would have to be registered compulsorily and the creation of such right is a "release" under Article 48(b) to be stamped accordingly.

Equivalent Citation: 2015 (3) KHC 752

IN THE HIGH COURT OF KERALA

W.P. (C) No. 34751 of 2008

Decided On: 22.06.2015

Vinayakrishnan M.C. Vs.Commissioner for Land Revenue and Ors.

Hon'ble Judges/Coram:K. Vinod Chandran, J.

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On dissolution, all assets of partnership firm are converted into money I.e. movable property.

As observed in the aforesaid, the value of the property is to be
assessed and the partners are entitled to get the adjustment of their
shares from the amount according to the share held in the
partnership firm. Consequently, the question of law is answered that
on dissolution, the immovable property of a partnership firm
converted into money, therefore, looses the character of immovable
property in the hands of the partner and the partners are entitled to
receive their proportionate share in residue of the property being
money represent the value of the property.
HIGH COURT OF CHHATTISGARH AT BILASPUR
Second Appeal No. 865 / 1998

Smt. Shanti Bai Agrawal & Others
VERSUS

Smt. Uma Bai Agarwal 

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Whether court should dissolve partnership from date of decree?

IN THE HIGH COURT OF KERALA

R.F.A. No. 355 of 2005 (Arising against the Order/Judgment in O. S. No. 311 of 1995)

Decided On: 27.01.2014

Appellants: Muraleedharan T.P. and Anr.
Vs.
Respondent: M. Ibrahimkutty and Ors.

Hon'ble Judges/Coram:S.S. Satheesachandran, J.

Contract - Alienation of assets - Section 43 of Indian Partnership Act, 1932 - Present appeal filed against order, by which, Defendants/Appellants were restrained from alienating or encumbering assets of firm and were directed to pay cost to Respondents - Whether impugned decree was not passed in consonance with Rules and was thus, vague - Held, Section 43 of Act states that partnership at Will is dissolved by partner giving notice, in writing, to all other partners, of his intention to dissolve firm - However, even if suit for dissolution of firm was filed without giving notice, decree can still be passed declaring that partnership would stand dissolved from date of decree - Therefore, where Court below had passed preliminary decree fixing date of dissolution of firm from date of decree, no grievance could be raised by Defendant on ground of want of notice under Section 43 of Act - Liability to render accounts of firm by Defendants irrespective of alienations still continued and decree was provided thereof - Prohibitory order passed by Court under preliminary decree stands vacated - Preliminary decree dissolving firm directing for taking its accounts was upheld subject to modifications that partners of firm shall be entitled to share in proportionate ratio as fixed for sharing profit and loss of accounts - Appeal disposed of. [paras 10 and 11]

Citation: AIR2014Ker90, 2014 (1) KHC 550, 2014(1)KLT820

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Whether partnership at will can be dissolved from date of decree?

IN THE HIGH COURT OF KERALA

R.F.A. No. 355 of 2005 (Arising against the Order/Judgment in O. S. No. 311 of 1995)

Decided On: 27.01.2014

Appellants: Muraleedharan T.P. and Anr.
Vs.
Respondent: M. Ibrahimkutty and Ors.

Hon'ble Judges/Coram:S.S. Satheesachandran, J.

Contract - Alienation of assets - Section 43 of Indian Partnership Act, 1932 - Present appeal filed against order, by which, Defendants/Appellants were restrained from alienating or encumbering assets of firm and were directed to pay cost to Respondents - Whether impugned decree was not passed in consonance with Rules and was thus, vague - Held, Section 43 of Act states that partnership at Will is dissolved by partner giving notice, in writing, to all other partners, of his intention to dissolve firm - However, even if suit for dissolution of firm was filed without giving notice, decree can still be passed declaring that partnership would stand dissolved from date of decree - Therefore, where Court below had passed preliminary decree fixing date of dissolution of firm from date of decree, no grievance could be raised by Defendant on ground of want of notice under Section 43 of Act - Liability to render accounts of firm by Defendants irrespective of alienations still continued and decree was provided thereof.
 Citation: AIR2014Ker90, 2014 (1) KHC 550, 2014(1)KLT820

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