Skip to content


Narottamdas Mayabhai Shah and ors. Vs. Anubhai Sarabhai Shah and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtGujarat High Court
Decided On
Judge
Reported in(1977)18GLR73
AppellantNarottamdas Mayabhai Shah and ors.
RespondentAnubhai Sarabhai Shah and ors.
Excerpt:
- - they claimed a decree for accounts in this behalf as well. the evidence clearly shows that the partnership ran into difficulties in the latter part of 1957. ex. 115 read with the aforesaid documentary evidence clearly shows that the bank account had to be closed and the business activities had to be discontinued. 2014). it has been clearly stated therein that 'business of the firm was closed down on maha vedi 30 of the year'.ex......with the aforesaid decision. the direction issued by the learned trial judge in paragraph ii of his order directing .the appellants 'to render accounts of the profits made by them in carrying on business in cotton brokerage under the name and style of their firm kalyanbhai, mayabhai during the period the partnership was subsisting till it was dissolved' will be deleted. subject to this modification the decree passed by the trial court is confirmed there will be no order regarding costs.
Judgment:

M.P. Thakkar, J.

1. If after the cessation of the business activities of a partnership firm (such is the limited question before this Court) some partners carry on a different and separate business in a different name, would they be liable to make over the profits earned by them to the other partners (who made no contribution by investing time-effort or money in the activities) in the context of Clause (b) of Section 16 of the Partnership Act? Can it be said that those who started separate business were carrying on a business of the same nature as and competing with that very firm when the firm had discontinued all its business and was doing no business

2. Respondent No. 1 instituted the suit giving rise to the present appeal on November 11, 1966 on the premise that he was a parties in a firm doing business in the name of M/s. Kalyanbhai Anubhai. According to him, the partnership had not been dissolved till the death of his brother (who was also a partner on April 11, 1963. He claimed accounts of the partnership. It was also contended by him that appellants (original defendants Nos. 1, 2 and 3) had during the continuance of the partnership business done business of the same nature and competing with the business of the partnership and had thereby made secret profits for which they were liable to render accounts to the extent that they had made profits in the said business. They claimed a decree for accounts in this behalf as well. The appellants contended that the firm had ceased doing business on Maha Vad Amas of S.Y. 2014 which corresponded with February 18, 1958. According to them, the firm stood dissolved with effect from February 18, 1958, and that the suit was barred by limitation. With regard to the competing business, their stand was that the said business was done after Act partnership was dissolved. The learned trial Judge came to the con-elusion that the partnership stood dissolved with the death of Ratilal, the brother of the plaintiff, on April 11, 1963. He therefore, passed a decree for dissolution of the firm and directed the defendants to render accounts, the appellants were directed to render accounts for the period ending on February 18, 1958 during which period the partnership was carrying on business. They were also directed to render accounts of the profits made by them in their separate business carried on in the name of Kalyanbhai Mayabhai from February 18, 1958 till April 11, 1963, on the premise that they had received secret profits earned by them by carrying business of the same nature competing with that of the partnership firm. The appellants feeling aggrieved by the preliminary decree passed by the trial Court have preferred the present appeal.

3. Learned Counsel for the appellants (defendants Nos. 1,2 and 3) has with fairness stated that he will not be able to question the finding that partnership stood dissolved on April 11, 1963 when one of the partners, namely, Ratilal the brother of the plaintiff died. He, however, contended that the learned trial Judge was in error in directing the appellants to render the accounts of profits made by them in their separate business carried on a different name (Kalyanbhai Mayabhai) from February 18, 1958 the date on which the partnership discontinued its business activities and in fact ceased to function; till April 11, 1963 the date on which the partnership stood dissolved by virtue of the death of Ratilal. It was argued that on a true interpretation of Clause (b) of Section 16 the appellants would not be liable to render accounts of such profits by them in their separate business when there was no question of competing with the business of the firm which, according to the finding recorded by the learned trial Judge himself, ceased to carry on any business activity from February 18, 1958 onwards. The learned trial Judge has concluded that the partnership ceased to carry on its business activities on February 13, 1958 and all its business activities in fact came to an end. In other words, the partnership business was discontinued which effect from February 18,158 There is overwhelming evidence to support this conclusion. Learned Counsel for respondent No. 1 plaintiff has not been able to challenge this finding. The evidence clearly shows that the partnership ran into difficulties in the latter part of 1957. Ex. 127 is a letter addressed by the Manager of the Punjab National Bank Ltd. to the partnership firm (M/s Kalyanbhai Anubhai) on September 24, 1957. It shows that 42 bales of cotton which were pledged with the Thasra Branch of the Bank were removed by one of their partners in a surreptitious manner. Ex. 128 is another letter bearing date-line September 27, 1957 from the Manager to the firm which says that Sheth Ramanlal Sarabhai, the brother of the plaintiff, was responsible for the removal of the 42 cotton bales. The Bank informed the firm that under the circumstances the Bank did not want to extend its Cash Credit facilities any longer. The account disclosed that a sum of Rs. 5,44,239-94 was due and payable by the firm to the Bank at the material time. The evidence of D.W. 1 Narottamdas Mayabhai whose deposition is recorded at Ex. 115 read with the aforesaid documentary evidence clearly shows that the Bank account had to be closed and the business activities had to be discontinued. Under these circumstances, it is clear that the business activity was discontinued from February 18, 1958. There is other evidence of an unassailable character which corroborates the evidence in this behalf. Ex. 120 is the Assessment Order passed by the Income-tax Officer, Circle IV, Ward-F. Ahmedabad, in relation to the assessment of the firm (M/s. Kalyanbhai Anubhai) for the Assessment Year 1959-60 (Accounting Year S.Y. 2014). It has been clearly stated therein that 'business of the firm was closed down on Maha Vedi 30 of the year'. Ex. 120 further shows that there was a loss of Rs. 104/- during the material period. Ex. 124 is the Assessment Order of the firm for the Assessment Year 1960-61 which relates to Accounting Year S.Y. 2015. It has been mentioned therein that the firm had stopped business in S.Y. 2014 arid that no business activity was carried on in S.Y. 2015. The income of the firm was assessed at nil. This evidence of an unimpeachable character establishes that the business activities of the firm were discontinued with effect from February 18, 1958 and no further business was done thereafter.

4. After the cessation of the business of the firm of Kalyanbhai Anubhai with effect from February 18, 1958 the appellants started their own business under a new name, namely, Kalyanbhai Mayabhai. The dispute relates to the profits made by them from this business from February 18, 1958 till April 11,1963 when the firm came to be dissolved in the eye of law on account of the death of one of its partners, namely, Ratilal the brother of the plaintiff. The plaintiff did not make any contribution of capital. Nor has he made any contribution of his time or effort or his business ability. The appellants have carried the business on their own at their own risk. If, however, they are liable to render accounts of the profits made by them in this business as the plaintiff was their partner in the business which they discontinued in 1958 by virtue of Section 16(b) of the Partnership Act, the plaintiff must succeed. Section 16(b) is in the following terms:

16. Personal profits earned by partners--

Subject to contract between the partners--

XX XX XX XX

If a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business.

5. In order to succeed, the plaintiff must show that (1) the partner against whom the claim is made was carrying on the business of his own, (2) the said business was of the same nature as the business of the firm, and (3) the said business was not only of the same nature but was also competitive with that of the firm. Now, Clause 16(b) will not apply if the partner is doing a business which does not compete with the business of the firm even if the business is of the same nature. The expression 'business of the same nature as and competing with that of the firm' postulates that some business activity is being carried on by the firm. The competition in business must be at the same level in the time-dimension. It is not possible to read Clause (b) of Section 16 as contemplating competition in a business carried on by a partner in present; on one hand and a business which was once being carried on by the partnership in the past. The competition must be at the same point of time. The very idea of competition connotes a rival activity at the same point of time. There cannot be rival business activity on the part of a partner if the partnership itself is not carrying on any business activity at all. There cannot be a competition or a race between a person who is standing still and a person who is running. In order to fall within the ambit of competition, both must be carrying on same activity. There cannot be any competition if one is inactive and the other is active. There cannot be an elocution competition between a dumb man and an eloquent man. On a true interpretation of Clause (b) of Section 16 it is impossible to hold that the business activity carried on by the appellants in a different name was one which was of the same nature as and competing with tint of the firm. Having regard to the conclusion firmly reached by me that the firm of Kalyanbhai Anubhai had ceased doing business and had discontinued all business activities on February 18, 1958 (the learned trial Judge has not considered the question from this angle), the decree passed by the learned trial Judge can not be sustained in so far as it directs the appellants to render the accounts of the properties made by them in their separate business carried be in the name of Kalyanbhai Mayabhai subsequent to the cessation of the business activities of the firm of Kalyanbhai Anubhai from February 18, 1958.

6. The appeal is partly allowed. The decree passed by the trial Court Is modified to bring, it in conformity with the aforesaid decision. The direction issued by the learned trial Judge in paragraph II of his order directing .the appellants 'to render accounts of the profits made by them in carrying on business in cotton brokerage under the name and style of their firm Kalyanbhai, Mayabhai during the period the partnership was subsisting till it was dissolved' will be deleted. Subject to this modification the decree passed by the trial Court is confirmed There will be no order regarding costs.


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