Skip to content


Jai Narayan Misra (Died) Per Lrs. Vs. Hashmathunnisa Begum (Died) Per Lrs. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtAndhra Pradesh High Court
Decided On
Case NumberSA Nos. 1048 and 1050 of 2001
Judge
Reported in2002(3)ALD406; 2002(3)ALT689
ActsPartnership Act, 1932 - Sections 14 and 42
AppellantJai Narayan Misra (Died) Per Lrs.
RespondentHashmathunnisa Begum (Died) Per Lrs.
Appellant AdvocateJ.V. Prasad, Adv.
Respondent AdvocateC.V. Mohan Reddy and ;Kishore Rai , Advs.
Excerpt:
contract - dissolution of partnership firm - sections 14, 42(c) of partnership act, 1932 - plaintiff died when the suit for dissolution of partnership firm was pending in court - legal representative not willing to continue the firm - according to section 42(c) partnership firm get dissolved if one partner dies and his legal heirs not interested to continue the firm - according to section 14 property becomes firms property if it is used for the business of firm and it is mentioned by implied or expressed agreement - in event of dissolved partnership plaintiff and respondent to divide firms property amongst themselves. - - the trial court as well as the 1st appellate court held that on account of the death of the 1st plaintiff the partnership stood dissolved. 29. the learned counsel.....g. yethirajulu, j.1. sa no. 1048 of 2001 was filed by the defendants in os no. 1061 of 1998 on the file of the vii senior civil judge, city civil court, hyderabad. the suit filed by the plaintiffs was decreed by the trial court. the defendants being aggrieved by the said judgment and decree of the trial court preferred as no. 52 of 1999 on the file of the iii additional chief judge, city civil court, hyderabad. when the first appellate court dismissed the appeal, the defendants preferred this appeal challenging its validity and legality. 2. sa no. 1050 of 2001 is also filed by the defendants in os no. 3061 of 1990 against the findings of the first appellate court in the cross objections filed by the plaintiffs in as no. 52 of 1999. since both the appeals arise out of the same suit, they.....
Judgment:

G. Yethirajulu, J.

1. SA No. 1048 of 2001 was filed by the defendants in OS No. 1061 of 1998 on the file of the VII Senior Civil Judge, City Civil Court, Hyderabad. The suit filed by the plaintiffs was decreed by the trial Court. The defendants being aggrieved by the said judgment and decree of the trial Court preferred AS No. 52 of 1999 on the file of the III Additional Chief Judge, City Civil Court, Hyderabad. When the first appellate Court dismissed the appeal, the defendants preferred this appeal challenging its validity and legality.

2. SA No. 1050 of 2001 is also filed by the defendants in OS No. 3061 of 1990 against the findings of the first appellate Court in the cross objections filed by the plaintiffs in AS No. 52 of 1999. Since both the appeals arise out of the same suit, they are disposed of through this common judgment.

3. The first plaintiff filed OS No. 1061 for dissolution of partnership firm known asM/s. Anand Cinema, to direct the defendantsto render accounts, to direct delivery ofthe entire cinema hall with the structures tothe plaintiff and costs. During the pendencyof the suit the 1st plaintiff died and herlegal representatives were brought on recordas plaintiffs 3 and 4. The second plaintiff isthe GPA holder of the first plaintiff. Thesuit was filed against the sole defendant andduring the pendency of the first appeal thedefendant died and his legal representativeswere brought on record as respondents 2to 6.

4. The averments of the plaint are briefly as follows :

5. The defendant made a proposal to constitute a firm for construction of a cinema theatre on the land of the plaintiff and on acceptance by the plaintiff a deed of partnership dated 26-6-1977 was executed between the plaintiff and the defendant. The plaintiff was receiving Rs. 2,000/- per month from the defendant towards the minimum profit in pursuance of Clause (4) of the partnership deed which envisaged that the plaintiffs share in the profits would be 2 annas in a rupee and in pursuance of Clause (13) there is a guarantee that the minimum profit of Rs. 2,000/- per month would be paid to be plaintiff. The defendant never disclosed to the plaintiff as to what amount was still due to her on setting the annual accounts of the firm. The defendant never furnished the statement of accounts to the plaintiff. He never disclosed as to how much profit was payable to her towards her two anna share in the business. The defendant mismanaged the firm's business and manipulated the account books by duping the plaintiff. There is mutual irretrievable distrust between the plaintiff and the defendant and hence it was impossible to get along with the defendant in the business of the firm. The defendant stopped payment of the minimum guarantee profit to the plaintiff with a motive to strain her financial resources. They gravity of distrust has assumed so much proportion that the plaintiff cannot continue as a partner in the firm. The defendant is also guilty of non-furnishing of annual accounts to the plaintiff and hence the suit.

6. The defendant filed a written statement stating that the averments of the plaint are not true, The vatee of the land given by the plaintiff for construction of the cinema theatre was only Rs. 70/- per sq.yard in the year 1977. The defendant invested more than Rs. 25 lakhs for the construction of the theatre. He has been maintaining accounts day-to-day in respect of the cinema business and no transaction relating to the said business had been concealed from the plaintiff An extent of 1000 sq.yds. had been acquired by the Government for widening of the road out of the total extentof 6808 sq. mts. of site given by the plaintiff for construction of the cinema theatre and there remains only the balance land. The duration of the partnership as per Clause (3)(c) of the partnership deed is 42 years but subsequently it was agreed to give option to the defendant for another period of 20 years. The terms and conditions of the partnership deed are onerous to the defendant. Irrespective of whether the business makes profit or not the plaintiff was guaranteed a minimum income of Rs. 2,000/- per month and the plaintiff is not responsible for the loss in the running of the theatre. The plaintiff never disclosed as to what amount was still due to her on settling the annual accounts of the firm. The defendant has been maintaining regular accounts of the firm and after the scrutiny and approval of the plaintiff those accounts were submitted to the Income Tax Department. At the instance of the second son and the GPA holder of the plaintiff, the defendant stopped payment of minimum profit of Rs. 2,000/-per month to the plaintiff till the clearance of the amount due to Income Tax Department. The defendant is always ready and willing to pay the amount due to the 1st plaintiff as and when the plaintiff obtains clearance from the Income Tax Department. The plaintiff never whispered or expressed any doubt about the correctness of the accounts. The second plaintiff who is the GPA holder of the first plaintiff has been acting in a highly irresponsible manner detriment to the interest of the parties. The alleged gravity of distrust is wilful because of the GPA holder of the plaintiff by taking advantage of the mental and physical condition of the plaintiff, The plaintiff has not issued any notice alleging any contravention of the terms and conditions of the partnership deed and the business is made for a specific period subject to the option of the defendant. The present suit was frivolous and misconceived, therefore it is liable to be dismissed in limine.

1. During the pendency of the suit the 1st plaintiff died and her legal representatives were brought on record as plaintiffs 2 to 4. On the basis of the above pleadings, the trial Court framed the following issues for trial;

'(1) Whether the plaintiffs are entitled for dissolution of the partnership firm as prayed for?

(2) To what relief?'

8. The plaintiffs in order to prove their case examined PWs. 1 and 2 and marked Ex. A1 and A2. The defendants examined DW1 to DW3 and marked Exs. D1 to D83. Ex. C1, an affidavit in IA 1649 of 1997 was marked at the end of the trial on behalf of the plaintiff.

9. The trial Court after considering the oral and documentary evidence adduced by both parties, and after verifying the relevant provisions of the Partnership Act and the decisions rendered by various Courts, came to a conclusion that the suit firm stood dissolved by the death of the 1st plaintiff on 17-5-1996. Trial Court further observed that since there was no mutual confidence between the parties and there are severe disputes since 1988, there is no possibility for the business of the firm to be carried on. The trial Court further observed that since the legal representatives of the 1st plaintiff are not agreeable to enter into partnership with the defendant and in view of the dissolution of the partnership due to the death of the 1st plaintiff, the necessary consequence is rendering of accounts and complying the other terms of the partnership deed. The trial Court ultimately held that there is deemed dissolution of the partnership with effect from 17-5-1996 due to the death of the 1st plaintiff and consequently the plaintiffs are entitled for rendition of accounts and for handing over the entire cinema theatre with allied structures to the plaintiffs as per theterms of the deed of partnership. Accordingly the trial Court through its judgment dated 18-1-1999 passed a preliminary decree holding that there is a deemed dissolution of the partnership firm M/s Anand Cinema on 17-6-1996 and for rendition of accounts from the inception of the firm and the defendant to handover the entire properly with allied structures and other material as enumerated under Clause 4 of the Partnership Deed within three months from the date of the judgment.

10. The defendants being aggrieved by the above judgment and decree preferred AS 52 of 1999 on the file of the XIII Additional Chief Judge, (Fast Track Court), City Civil Court, Hyderabad. The plaintiffs also filed cross objections requesting to hold that there is dissolution of the firm on account of mismanagement.

11. After the judgment of the trial Court and before the filing of the appeal, the 1st defendant died and his legal representatives were brought on record as appellants 2 to 6.

12. The 1st appellant Court after considering the oral and documentary evidence and after going through the judgment of the trial Court concurred with the findings of the trial Court regarding the dissolution of the partnership firm and allowed the cross objections by holding that the plaintiff is entitled for a decree of dissolution of the firm on the ground of improper maintenance of accounts. The 1st appellate Court accordingly delivered its judgment on 17-10-2001 dismissing the appeal by confirming the judgment and decree of the trial Court and allowing the cross objections filed by the plaintiff.

13. The defendants being the appellants in the main appeal and respondents in the cross objections being aggrieved by the judgment and decree of the 1st appellateCourt preferred this appeal challenging itsvalidity and legality.

14. The following are the substantial questions of law to be considered by this Court.

(1) Whether the partnership firm stood dissolved by virtue of Section 42(c) of the Indian Partnership Act on account of the death of the 1st plaintiff?

(2) Whether there was mismanagement of the business of the partnership firm by the 1st defendant by falling to maintain proper accounts?

(3) Whether the partnership can be treated as a licence as contended by the appellants-defendants?

(4) Whether the land given by the 1st plaintiff and the theatre constructed by the 1st defendant are the properties of the firm liable to be shared as per the shares of the respective partners?

(5) Whether the Courts below are justified in directing delivery of the land along with the structures, machinery and equipments to the plaintiff on account of the dissolution of the partnership firm?

(6) Whether the plaintiff is entitled for rendition of accounts form the date of commencement of the firm till the date of dissolution?

Point No. 1:

15. Ex. A2 is the partnership deed dated 26-6-1977. There are only two partners to the firm.

16. Under Clause (3) of Ex. A2 the 1st party (1st plaintiff) is entitled to twoannas share in the profits only and is not liable to any losses. The 2nd party (1st defendant) is entitled for 14 annas share in the profits and liable to bear the entire loss, if any.

17. Under Clause (22) it was stipulated that the partnership shall be in force for a period of 42 years from the date of Ex. A2 and as per Clause (24) the 2nd party agreed that at the end of the period of 42 years the partnership shall automatically come to an end and thereafter the entire property i.e., the land, buildings, structures, machineries, equipment, furniture, fixtures and fittings etc., shall automatically vest on the 1st party.

18. The terms and conditions of the partnership deed are indicating that after construction of the cinema theatre by the 2nd party on the land of the 1st party, the 2nd party shall manage the affairs of the business and, after completion of 42 years, it was agreed that the 2nd party shall walk out from the property leaving everything to the 1st party.

19. By the date of Ex. A2, the 1st parry was 69 years old and the 2nd party was 57 years old. They are conscious that there is no scope for both of them to live till the end of the period of the partnership. It is not explained by either of the parties under what circumstances the period of 42 years was fixed as the term of the partnership.

20. Under Clause (20) of the partnership it is mentioned that the 2nd party shall alone be entitled to be in full and complete management of the entire business and the 1st party shall not interfere in any manner whatsoever with the conduct and management of the business for a period of 42 years under any circumstances whatsoever, including the disruption of the partnership. It was also stipulated under Clause (22) that the partnership shall be inforce for a period of 42 years from the date of the deed and the death of any Partner shall not have any effect of dissolving the firm.

21. Under Clause (15) of Ex. A2 it was agreed that the 1st party is entitled to all profits to an extent of two annas share, which shall in any event be not less than Rs. 2,000/- per month and such excess will be taken into account towards adjustment for any shortfall of income in any year.

22. In pursuance of the above clauses, the 1st party might have gained an impression that she is likely to get more amount than Rs. 2,000/- per month towards her share of profit in the business. It is an undisputed fact that at any point of time the 2nd party paid not more than Rs. 2,000/- per month to the 1 st party.

23. Section 42 of the Indian Partnership Act contemplates various methods of dissolution of a firm. It reads as follows:

'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 the 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.'

24. As per the above section the dissolution of the firm may be with the consent of the partners, it may be compulsory on account of adjudication of all the partners as insolvents or by the happening of any event which makes it unlawful for the business of the firm to be carried on or dissolution on the happening of certain contingencies viz., on expiry of the fixedterm or on completion of the work of the adventure taken by the firm, on account of death of a partner and by adjudication of a partner as an insolvent.

25. Under Clause (c) of Section 42 the firm gets dissolved by the death of a partner, subject to the contract between the partners. In the present case the 1st party died subsequent to the filing of the suit. On account of the death of one of the two partners the firm stood dissolved. The other plaintiffs who are the legal representatives of the 1st plaintiff are not willing to continue the partnership. Therefore, there is no contract between the parties to continue the firm. In the absence of such contract, the firm stands dissolved on account of the death of the 1st party.

26. The learned Counsel for the appellant submitted that since the parties agreed under Ex. A2 that in spite of the death of any of the partners, the firm shall continue, for 42 years irrespective of the death of the 1st plaintiff.

27. A partnership is a contract between the partners. There cannot be any contract unilaterally without the acceptance by the other partner. After the death of the 1st party, if the L.Rs of the said party are willing to continue the firm and volunteer to become the partners of the firm, the position would be different. But the L.Rs of the 1st plaintiff are not at all interested in continuing the firm or to constitute a fresh firm. In the absence of such consent, it is impossible to continue the firm. The terms of contract, if any, should be in consonance with the provisions of the Partnership Act and such terms and conditions shall not be determined to the rights of the parties. Therefore, it is concluded that the Clause of the partnership that it shall continue for 42 years irrespective of the death of the partner or disruption of partnership is not sustainable.

28. The partnership may also be dissolved at the instance of any partner giving notice in writing to all other partners of his intention to dissolve the firm. The 1st plaintiff during her life time expressed her intention to dissolve the firm, for the reasons mentioned therein, and when the matter is under consideration of the Court regarding the dissolution of the partnership on other grounds, the 1st plaintiff died and in view of Clause (c) of Section 42 the dissolution of the firm had taken place. The trial Court as well as the 1st appellate Court held that on account of the death of the 1st plaintiff the partnership stood dissolved.

29. The learned Counsel for the respondents submitted that since there is a finding by the Courts below that the 1st defendant failed to maintain the accounts of the firm properly, it amounts to mismanagement of the affairs of the firm, therefore a finding may also be given that the firm is liable to be dissolved on the ground of mismanagement. The 1st appellate Court observed that there are disputes and litigation between the parties and there was no mutual confidence in each other, therefore this is one of the grounds on which the firm is liable to be dissolved. Since it is held by the 1st appellate Court that there was mismanagement of the affairs of the firm by the 1st defendant; I have no hesitation to hold that the mismanagement of the firm is also one of the grounds for the dissolution of the firm. The learned Counsel for the respondents cited a judgment of the Supreme Court in Commissioner of Income Tax v. Suraj Bahn Om Prakash, 1986 Income Tax Reports 833, wherein it was held that by virtue of Section 42 of the Indian Partnership Act, on account of death of a partner the firm stands automatically dissolved.

30. In , the Supreme Court held that in a firm consisting of two partners on account of death of one of the partners, the firm automatically dissolved and observed as follows:

'A partnership normally dissolves on the death of a partner unless there was an agreement to the contrary. There was no such agreement in the original partnership deed. Even assuming that there was such an agreement in a partnership consisting of two partners on the death of one of them the partnership automatically comes to an end and there is no partnership which survives and into which is third party can be introduced. Hence on the death of S, the original partnership was dissolved. The subsequent taking in of the assessee as a partner was only as a result of entering into of a new partnership between R and the assessee. Partnership was not a matter of heritable status but purely one of contract'

31. In the light of the above decisions of the Supreme Court it can be safely concluded that when one of the two partners of a firm dies, the firm automatically dissolves. Therefore, the Courts below were right in holding that the firm stood dissolved by the death of the 1st plaintiff on 17-5-1996.

32. After going through the judgments of the Courts below, I do not find any ground to interfere with the said findings. The findings of the Courts below on this point are, therefore, confirmed.

Point No. 2:

33. As per the averments of the plaint the plaintiff was induced by the defendant to contribute a valuable land of 6688 sq. meters situated in S.P. Road, Secunderabad towards her share capital in the partnership firm. The plaintiff on account of immense confidence on the defendant agreed to provide the vast extent of land for the construction of the theatre. The defendant maintained the account of the firm and never disclosed to the plaintiff as to what amount was due to her on settling the annual accounts of the firm every year. The defendant stopped payment of the agreed minimum amount of Rs. 2,000/- per month since 1986 on the pretext that a sum of Rs. 17,343/- is due from her to the Income Tax Department and did not restore payment after discharging the amount due to Income Tax Department. The defendant did not pay the profit to the plaintiff from December, 1986 including the minimum guaranteed profit of Rs. 2,000/- per month. The defendant failed to furnish a statement of accounts to the plaintiff at any time. It was further pleaded that the defendant manipulated the account books and duped the plaintiff. The 1st defendant did not render the accounts to harass the plaintiff and he is guilty of non-furnishing of annual accounts to the plaintiff.

34. It is the further contention of the plaintiff that Anand Cinema is running in huge profits and the defendant in order to deprive the plaintiff her share of profit, has been showing losses in the business.

35. The 1st defendant as DW1 admitted that he did not send the annual accounts to the plaintiff No. 1 and volunteers that he used to inform about those accounts to the plaintiff. It is contended on behalf of the 1st plaintiff that the defendant was collecting huge amounts for the advertisements, pan shop, canteen, cycle stand, Coco Cola Company for advertising in front of the cinema theatre, charms cigarette company for advertising on the board in the front portion of the theatre, and a hoarding of Prakash Arts. It was suggested to DW1 that he was collecting Rs. 250/- p.m., from the pan shop man, Rs. 7,500/- per week from the canteen person, that he collected Rs. 6 lakhs from Coca Cola Company for advertisement in the front side of the theatre, huge amount from Charms Cigarette Company prior tothe advertisement from Coca Cola Company, huge amount from Prakash Arts for displaying a board in the premises of the theatre, rent from a house situated in the premises of the cinema theatre. It was further suggested that he did not file any documents relating to the above transactions and he did not deny the truthfulness of any of these transactions except saying that his son who is his GPA holder knows about all those transactions. It was also suggested to DW1 that the contents of the Income Tax returns are not correct, The attention of this witness was also drawn to show that in Ex. B16 under item No. 10 he had shown loss of Rs. 37,001-43 ps. for the year 1989-90 whereas in Ex. B26 he had shown the profit of Rs.78,038-00 for the same year. In Ex. B16, he had shown a profit of Rs. 35,363-80 Ps. for the year 1995-96 whereas in Ex. B20 he had shown a profit of Rs. 82,109-00 for the same year. In Ex. B16 had shown profit of Rs. 20,489-37 ps only, but for the same year he had shown a profit of Rs. 97,138-00 in Ex.B23. In Ex. B16, he had shown a loss of Rs. 1,21,399-99 ps. for the year 1991-92 whereas in Ex. B24 he had shown a profit of Rs. 1,85,715-00 for the same year. For the year 1990-91 he had shown a loss of Rs. 12,011-00 in Ex. B25 whereas he had shown a loss of Rs. 1,85,715-00 under Ex. B16 for the same year. When he was questioned that the entries in Ex. B16 are not tallying with the entries in Ex. B17 to B33 for the relevant years, he replied that there is a big mistake done by somebody at somewhere. In the cross-examination, he had stated that he does not remember the name of the accountant who is maintaining the accounts of the theatre. When he was asked whether he is intending to produce account books into Court on his own, he replied in the negative and stated that he will produce them if the Honourable Court orders him to do so. He further answered that he does not believe the income tax returns submitted by the Chartered Accountant before the Income Tax authoritiesand he further admitted that the accounts maintained by him do not tally with the income tax accounts presented to the Income Tax Department. It was suggested to this witness that he gets Rs. 75,000/- for every film screened in the theatre as sponsorship from others. When he was asked whether he has any document to show that the accounts were shown to the 1st plaintiff, he replied that it was not necessary. In the cross examination he also admitted that he was paying Rs. 7000/- p.m., towards salary to his son S.P. Misra as employee by showing in the income tax returns. It was suggested to him that his son and himself manipulated the accounts and mismanaged the affairs of Anand Cinema and the cinema was running with huge profits and to deprive the share of the plaintiff they were showing the losses, The 1st defendant did not choose to produce the original account books into Court and did not examine the persons who maintained the accounts and who instructed such persons to maintain the accounts. He did not choose to examine his son who is a GPA holder, who managed the affairs of Anand Theatre. He examined DW2 who is not the author of the income tax returns and the statements of accounts, DW2 astonishingly deposed that he does not know who is the Manager of Anand Cinema and he further stated that the sponsored amounts received from various firms do not reflect in the profit and loss accounts marked through him. He does not know who was the Accountant of Anand Cinema by the date of his evidence.

36. Though the plaintiff is not concerned with the losses of the firm, she is entitled to the legitimate profits to the extent of her share for the investment made by her in the business in the form of giving the land. The answers given by DW1 in the cross examination indicate that he did not send the copies of the profit and loss statements, copies of income tax returns to the plaintiff for her perusal and he did notplace the accounts before the plaintiff to enable her to verify whether she is entitled for any amount more than Rs. 2,000/- towards her share. The 1st defendant also did not give sufficient reason as to why he failed to pay Rs. 2,000/- also to the 1st plaintiff from December, 1996 after discharge of the amount due to the Income Tax defendant on behalf of the 1st plaintiff. In the absence of such explanation from the 1st defendant, the 1st appellate Court was right in holding that the 1st defendant failed to maintain the accounts properly. On account of non-production of the account books for the verification of the plaintiff, the non-inclusion of certain amounts received by way of income in the accounts, the non-submission of correct accounts to the Income Tax Department, the failure of the 1st defendant appraising the 1st plaintiff about the profits and losses of the firm, the discrepancies found in Ex. B16 and other exhibits relating to same periods of various years, the 1st appellate Court was justified in allowing the cross objections preferred by the respondents - plaintiffs by holding that the firm is liable to be dissolved on this ground also. I do not find any ground to interfere with the decision of the 1st appellate Court in allowing the cross objections filed by the respondents/plaintiffs. This point is accordingly answered against the appellants and in favour of the respondents.

Point No. 3

37. The learned Counsel for the appellants vehemently argued that in view of the terms and conditions of Ex.A2 partnership deed, the partnership firm shall continue for 42 years from the date of its commencement despite the death of any of the partners. He further submitted that since there was a contract between the two partners under Clause (20) of Ex.A2, the circumstances mentioned in Section 42 regarding the dissolution of the partnership are subject to the above contract between the partners. In view of the above contract under Ex. A2, the conditions stipulated under Section 42 are subject to the said contract. He, therefore, requests that it has to be held that the firm shall continue till the end of 42nd year by setting aside the findings of the Courts below on this aspect. I have already held under point No. 1 that by virtue of Section 42 Clause (3) the firm stood dissolved in addition to the other grounds of mismanagement and impossibility to continue the business.

38. The learned Counsel for the appellant further submitted that in the event of the Court coming to a conclusion that the firm stood dissolved, a finding has to be given that the partnership deed is in the nature of licence irrespective of the title of the document and when once Ex. A2 is treated as a deed of contract for licence, the defendants are entitled to continue to run the business in the capacity of licensees and in such an event, the Court cannot pass any decree directing the delivery of property to the plaintiffs.

39. The learned Counsel for the appellants while relying on the terms and conditions of Ex. A2 stressed that the business shall continue for 42 years. He cannot take the aid of some of the terms of Ex. A2 and deny the liability under the other terms of Ex. 2. Irrespective of the title of Ex. A2, the language of the document has to be taken into consideration to decide whether it is a partnership deed or a deed of licence. The totality of the conditions stipulated under Ex. A2 and the language unused therein are leading to an irresistible conclusion that it is a deed of partnership, which was acted upon by both the parties. When the 1st defendant laid so much stress on Clause (20) of Ex. A2 and when he got adverse finding on account of testing of Clause (20) with the touch stone of Section 42 of the Act, he is not entitled to plead that it is a licence deed leading to an irreconcilable situation betweenthe plea of partnership and licence. I therefore, do not find any force in the contention of the learned Counsel for the appellants and this point is accordingly held against the appellants and in favour of the respondents.

Point No. 4

40. In order to identify whether the land given by the 1st party and the theatre constructed by the 2nd party can be treated as the properties of the firm, I wish to examine the relevant provisions of the Indian Partnership Act, 1932 ('the Act' for brevity), the legal position and the terms of the contract between the parities. Section 14 of the Act reads as follows:

'14. The property of the firm - Subject to contract between the partners the property of the firm includes all properties and rights and interests in property originally brought into the stock of the firm or acquired by purchase or otherwise by or for the firm or for the purposes and in the course of the business of the firm and includes also the goodwill of the business. Unless the contrary intention appears property and rights and interests in properly acquired with money belonging to the firm are deemed to have been acquired for thefirm'

41. This section defines what is a property of the firm. It depends upon the contract between the parties. According to this section, all property and rights and interest in property originally brought into the stock of the firm and all property and rights and interest in property of the firm may be something else, besides things mentioned in the section. The general rule laid down in the section 'subject to contract between the parties' makes it clear that the partners may agree between themselves to change the general rule and such an agreement may be expressed or implied.

42. The property belonging to a person in the absence of an agreement to the contrary does not become the property of the partnership merely because it is used for the business of the partnership. It would become property of the partnership only if there is an agreement, expressed or implied, that the property under the agreement of partnership to be treated as the property of the partnership.

43. In Boda Narayana Murthy and Sons v. Valluri Venkata Suguna, : AIR1978AP257 , this Court held as follows:

'According to the provisions of Section 14, for a property to become the property of a firm, it must have been brought into common stock of the firm by the partners originally when the firm was formed, or subsequently acquired by the purchase or otherwise in the course of the business of the firm, (page 255 of the Law of Partnership in India by S.B. Singh 5th edition)'

44. In the present suit the 1st party agreed to give her land of an extent of 6,688 sq. meters, bearing Nos. 156.155 (2-11-30) situated at S.P. Road, Secunderabad, Cantonment, with the compound known as Paigah House for construction of cinema theatre. It is clearly mentioned in the partnership deed that the 1st party is the absolute and exclusive owner of the said land. The 1st party offered her land towards her two annas share capital for the construction of a cinema theatre and other allied constructions for running a cinema business. The 2nd party agreed to construct cinema theatre and other allied constructions by procuring the necessary funds. It was agreed that the 1st party shall not be bound to contribute any amounts towards such constructions.

45. None of the clauses of Ex. A2 indicate the intention of the partners to treat these properties as the properties of the firm or to throw these properties into the common hotch potch of the firm. Theirm has no properties of its own. No property was treated as the property of the firm. No properly was acquired during the course of business. In the light of the above provisions of the Act and the legal position, I concur with the findings of the Courts below that the land and the cinema theatre are not the properties of the firm and they are the properties of the respective parties. This point is accordingly answered in favour of the respondents and against the appellants.

Point No: 5

46. The trial Court as well as the 1st appellate Court directed delivery of the property with the structures, machinery and equipment therein to the plaintiffs. The learned Counsel for the appellant submitted that Clause (24) of Ex. A2 does not contemplate dissolution of the partnership at any time prior to the period fixed under Clause (20) of the deed, therefore, the order of delivery passed by the Courts below by advancing the date is not proper and further submitted that in the event of dissolution of the partnership, the procedure prescribed under the Act has to be followed for settlement of accounts. He further submitted that as per Clauses 11 and 13 of Ex. A2, the land, the building and the machinery of the firm became the property of the firm and the said property has to be treated as the property of the firm under Clause (21) of Ex. A2 and he further submitted that as the 1st plaintiffs share is only 2 annas as per Clause (4) of Ex. A2, the value of the above properties of the firm shall be distributed in the ratio of 2:14 between the plaintiffs and the defendants on the basis of the present market value and further submitted that as the shares of the partners are clearly defined under Ex. A2, partnership deed, the question of working out the equities between the partners does not arise and on this ground he requested to set aside the findings of the Courts below regarding theorders of delivery of the properties to the plaintiffs.

47. The learned Counsel for the respondents Sri C. V. Mohan Reddy submitted that though there was a contract between the partners under Clause (20) of Ex. A2 that the partnership shall continue for a period of 42 years, by virtue of operation of Section 42(c) of the Partnership Act, on account of death of one of the two partners, the date of expiry of partnership stood advanced to the date of the dissolution of the firm, therefore, the delivery of the land along with the buildings, machinery and equipment agreed to be delivered after the completion of 42 years has to be advanced and in view of the above situation, the Courts below rightly held that the plaintiffs are entitled for the delivery of property with structures, machinery and equipment and there are no grounds to disturb the findings of the Courts below on this aspect.

48. In the light of the arguments advanced by the learned Counsel for both the parties, it is essential to refer to certain Clauses of Ex. A2 and the provisions of the Indian Partnership Act:

Clause (24) of Ex. A2 reads as follows:

'The Party of the Second Part hereby declares, covenants and agrees that at the end of the period of forty two (42) years, this partnership shall automatically come to an end and thereafter the entire property, that is land, buildings, constructions, machineries, equipment, furniture, fixture, Fittings etc., shall automatically vest in the party of the first part in 'As is where is' condition. Neither party shall be entitled to remove any item or property except for replacement by the firm during the subsistence of this Partnership Firm'

Under this clause the 1st defendant agreed that the entire property shall automatically vest with the plaintiff at the end of theperiod of 42 years.

49. None of the terms of Ex. A2 indicates that either the land of the plaintiff or the buildings, machines, equipment, furniture, fixtures and fittings made by the 1st defendant shall be treated as the property of the firm. I have already held under point No. 4 that the above properties were never treated and intended to be treated as the properties of the firm. Therefore, the contention of the learned Counsel for the appellant that the value of those properties shall be distributed among the plaintiffs and the defendants at the ratio of 2:14 does not arise.

50. Coming to the aspect relating to the delivery of property ordered by the Courts below is concerned, I wish to make the following observations:

51. As per the terms of the partnership deed, there was no intention from either of the parties to treat those properties as the properties of the firm. There were no subsequent acquisitions or additions to the above properties from out of the income of the firm. Clause 24 of the Partnership deed expressly provided that after the expiry of term of 42 years the land as well as the building with the fixtures etc., to be vested with the 1st plaintiff. But that was agreed to happen only after the expiry of the term of 42 years. However, it is a clear indication that there was no contemplation between the partners at any time to distribute the assets per the value of the shares of each partner. Now the only question remained unanswered is as to how to facilitate the parties to take control of the respective properties. The building constructed by the 1st defendant is embedded to the land given by the 1st plaintiff. Therefore, it is only possible for the defendants to take away the building without any loss or damage. Since the building is a cinema theatre, the projectors, the connected machinery, the furniture lights, fans screen etc., items can be taken away by thedefendants including the pads of the false ceiling, the roof etc. The walls, the pillars, the RCC slabbed portions, if any, have to be left otherwise, the process of removal involves so much expenditure and the proceeds out of it may not be useful for any purpose.

52. The Courts below directed delivery of the entire property including the building, machinery, etc., to the plaintiffs by applying the theory of advancement on account of automatic dissolution of the partnership due to demise of the 1st plaintiff. The 1st defendant might have made his calculation on the basis of the period of the partnership, the nature of the business, the probable income he is likely to get and invested about Rs. 25 lakhs for the construction of the theatre. Head there been any clause in the partnership deed to disentitle him to enjoy the property, he would not have invested so much money to run the cinema business. Had the 1st plaintiff been alive the firm would have continued for some more years and the 1st defendant would have got some more income in view of the investment made by him.

53. In the light of the above circumstances, I am of the view that directing the delivery of the entire property to the plaintiffs would amount to causing prejudice to the rights of the 1st defendant and would put him to loss. Since the partnership got dissolved on account of the death of the 1st plaintiff, it would be just and reasonable, if each parry is directed to take the respective properties. But, in view of the embedding of the walls, the flooring, pillars etc., to the land of the 1st plaintiff, it may not be possible for the defendants to realize the value of the entire building. Though the value of the land by the date of Ex.A2 partnership deed was only Rs. 5 lakhs, on account of escalation of prices, the land value increased multi-fold and if the plaintiffs propose to sell the land, they will get goodreturns. The learned Counsel for the respondents- plaintiffs also submitted that whatever direction the Court gives regarding the value of the construction that remains on the land on account of impossibility of removal the respondents will abide by the said direction and pay the value of the structure that remains on the land, after proper assessment of such structure by taking into consideration the age of the building, the depreciation etc.

54. In the light of the above circumstances, I hold that the plaintiffs are entitled to have exclusive possession of the land and the defendants are entitled to take away the projectors and the other machinery, the furniture and all other items, which can be safely removed from the place and the plaintiffs should pay the value of the remaining portions of the structures which cannot be removed without any damage, after proper valuation of the same.

55. So far as the payment of the value of such remaining structures is concerned, the following arrangement would meet the ends of justice:

56. The 1st defendant contended that he invested Rs. 25 lakhs for the construction of the cinema theatre in the year 1977. The plaintiffs alleged that the 1st defendant suppressed the income of the theatre and there was mismanagement of the affairs of the cinema theatre. The 1st appellate Court held that the management of the accounts of the firm was not proper and allowed the cross objections filed by the plaintiff. In the foregoing of the judgment this Court confirmed the finding of the 1st appellate Court on this aspect. A preliminary decree was passed by the trial Court holding that there is a deemed dissolution of the partnership firm on 17-5-1996 and for rendition of accounts since the inception of the firm. Therefore, the Court has todetermine the amount if any due to the plaintiffs after rendition of the accounts of the firm.

57. Since the construction of the theatre was completed in the year 1977 by installing the necessary machinery and other equipments the present value of the building would have diminished, therefore, it has to be assessed by a technically qualified person the value of the structures that remain on the land after removal of he machinery, furniture, other equipments etc. Had the theatre business continued for some period, the defendants would have earned some profits, though marginal, as per the income tax returns. Since the business was forced to be wound up on account of the death of the 1st plaintiff, it may be appropriate to direct the plaintiffs to pay the value of the remaining structures after adjusting the amount if any due to the 1st plaintiff towards her share of profit after finalization of the accounts going to be rendered by the defendants. Though the 1st defendant agreed to bear the losses if any, in the business of the firm, I am of the view that the ends of justice would be met if the defendants are compensated to the extent of the loss suffered on account of the impossibility of removal of certain structures from the land.

Point No. 6:

58. The trial Court passed a decree for rendition of accounts. The 1st appellate Court also directed for rendition of accounts by confirming the decree of the trial Court. After going through the judgment of the Courts below I am convinced that this finding is on the basis of the evidence available on record and I do not wish to interfere with the findings of the trial Court as well as the 1st appellate Court in this regard. Hence this point is held in favour of the respondents and against the appellants.

59. In the result, the appeal is allowed in part insofar as the findings of the Courts below regarding the delivery of the entire property to the plaintiffs and ordered as follows:

60. The following sentence in the judgment of the trial Court 'the defendant shall handover the property namely M/s. Anand Cinema with allied structures and allied material as enumerated under Clause 24 of the partnership deed dated 26-6-1997 within three months from today' shall be substituted with the following:

'the defendants are permitted to take away the machinery, the equipments, the furniture and all other items including the material of the structure to the extent possible and deliver possession of the land with the remains of the structure which could not be removed on account of impossibility due to embedding of those structures to the land. '

61. The defendants are entitled to get the value of such remaining structures assessed through a qualified technical expert and are entitled to get the value of such structures from the plaintiffs after adjustment of the amount, if any, found due to the plaintiffs after finalisation of the accounts which are going to be rendered by them. If the amount due to the 1st plaintiff towards profit of the business to the extent of her share, is more than the value of the remaining structures, the plaintiffs are entitled to recover the same from the defendants.

62. The defendants are granted three months time to vacate the premises and to deliver vacant possession of the land with the remaining structures if any embedded to the land which becomes impossible to remove such structures.

63. The appeals is respect of the other findings of the 1st appellate Court is dismissed by confirming those findings. Each party to bear its own costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //