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Mangilal Vs. Bhanwarlal and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtRajasthan High Court
Decided On
Case NumberSecond Appeal No. 68 of 1956
Judge
Reported inAIR1963Raj153
ActsPartnership Act, 1932 - Sections 29, 39, 40 and 41
AppellantMangilal
RespondentBhanwarlal and ors.
Appellant Advocate Hastimal, Adv.
Respondent Advocate Shrikishen Mal, Adv.
DispositionAppeal dismissed
Cases ReferredDurga Prosad v. Anardeyi Sethani
Excerpt:
.....principle that emerges is that where dissolution by agreement is put forward as a foundation for a suit for accounts, a mere closing of the business or to carry on active business on behalf of or by the partnership or the failure of some of the members thereof to take interest in its affairs, or the mere vacating of the shop where the business was carried on or the discharge of its servants would not be enough to constitute 'dissolution'.for the firm may still continue its existence in order to recover its outstandings or to pay off its debts, and, if so, the jural relation between the various partners would still subsist therefore whether dissolution of a firm has been brought about or not would, in the ultimate analysis depend on the intention of the parties and where there is no..........the basic question which thus arose and arises for decision in this appeal is whether the suit firm stood dissolved as alleged by the plaintiff or it did not. if it did, the plaintiff assignee's suit would be competent, though he would be entitled to an account from the date of the dissolution and to receive his share of the proms on that basis. but if it was not so dissolved, then the plaintiff's suit must fail, because he cannot sue for dissolution or for accounts of an undissolved tirm.the trial court after a fairly elaborate discussion or the entire evidence came to the conclusion that the dissolution of the suit firm had not been brought about. the learned senior civil judge on appeal upheld the same finding, but his discussion of this aspect of the case was rather sketchy.....
Judgment:

I.N. Modi, J.

1. This is a plaintiff's second appeal against a judgment and decree of the learned Senior Civil Judge, Jaipur, dated the 18th November, 1955, in a suit to rendition of accounts.

2. The material facts leading up to this appeal may shortly be statsd as follows:

The plaintiff is an assignee from defendant respondent No. 2 Jamal. The plaintiff's case, briefly put, was that IB 1948. some 42 persons of Kanhroli constituted a partnership to carry on business in controlled cloth, mis partnership was admittedly dissolved some 'time in August, 1949, when it is said that Government control on cloth was somewhat relaxed and so it was decided that a new partnership among the ten defendants respondents be constituted in the name and style of kapda vyavsay Sangn, Kankroli, and cloth approximately worth Rs. 525/- which fell to the share of each of these partners as a result of the dissolution of the former firm was accepted as the capital of each of these partners in the new firm.

It is then alleged that after some time it was decided that the cloth which was in stock so distributed among the ten partners of the value of Rs. 825/- each and that this be made, over to each of the partners on his giving a sum of Rs. 300/- in the partnership account regard being had to the fact that the initial capital of each partner was Rs. 525/- only and it was further decided that the account of the profit would be gone into and settled later.

The plaintiffs case further was that four of the partners were given their share of the cloth by defendant No. 1 Bhanwarial who was alleged to be the managing partner of the entire business. The plaintiff's case then was that on Baisakh Vadi 4 Smt. 2007 (equal to 6th April, 1950) defendant respondent No. 2 Jamal assigned his interest in the partnership to the former for a sum of Rs. 350/- by a writing Ex. 1 which was executed by the latter in favour of the former. The plaintiffs case further was that the partnership business was thereafter dissolved, and consequently he was entitled to ask for accounts and get respondent Jamal's share of the profits and as according to him he was unable to obtain his share from defendant respondent No. 1 Bhanwarial, he brought the present suit with the prayer that he be allowed Rs. 550/- worth of cloth or the sum of Rs. 550/- in lieu thereof, and he further asked for a decree for rendition of accounts and for his share of the profits.

As the plaintiff did not disclose in his plaint any dates as to the decision relating to the distribution of the cloth between the partners as also for the dissolution or the partnership, an application for further and better particulars was filed by one of the defendants and the plaintiff then gave out that the decision to distribute the cloth was arrived at some time in the month of Jeth of Section 2007 (corresponding to some time in May, 1950) and that the dissolution of the firm took place in the month of Asoj or Kartik of the same year, which corresponds to October or November, 1950. The plaintiff also disclosed that no document was executed between the partners in that regard.

The only other thing which is necessary to mention before proceeding further is that according to the plaint defendant No. 1 Bhanwarial was the person who maintained all the account-books and was in charge of the business.

Of the ten defendants Bhanwarial alone resisted the suit, though Jamal also filed a separate written statement in which he admitted to have assigned his right, title and interest in the partnership to the plaintiff as alleged by the latter.

The important points that he made in his defence and which deserve to be mentioned are; (1) that Bhanwarist was not the managing partner although he was in charge of the accounts of the partnership and (2) that he was not aware whether the firm had been dissolved or not. So far as Sfianwarlal is concerned, he admitted that Jamal, plaintiff's assignor, was one of the partners of the firm, but pleaded that he was not aware whether the plaintiff had purchased his share or not. He denied that he was the managing partner of the firm; but he did accept that he used to maintain all the accounts of it. This defendant also contended that the firm had not been dissolved and that money which was due from its customers had yet to be recovered and its debts had to be paid.

As regards the cloth taken away by defendants Mangilal and Roshanlal, his version was that as the Government had lifted control over the sale of cloth, the prices had fallen and that it had become difficult to sell the cloth belonging to the partnership and therefore a list or lists of the cloth which was in the stock had been made and some of it had been taken away by some of the partners such as Mangilal and Roshanial to sell it at their shop, ana that the price of this cloth had been debited against them, as these persons had not rendered any account of the sales made lay them. His case further was that the rest of the cloth remained with him and that he went on selling it and has credited the sale proceeds of the cloth sold in the account-books of the firm and that he had also paid out of these sale proceeds the debts which the firm owed to its creditors. It was however admitted that as business had become slack and difficult, the shop in which the business of the firm used to be carried on was vacated and its Munim Deopuri was also discharged. It was finally, contended that the plaintiff could not bring a suit for accounts of the firm without first asking for its dissolution and consequently the suit deserved to be dismisses.

3. On these pleadings, the trial Court framed as many as eight Issues and eventually dismissed the plaintiffs suit against all the defendants except defendant respondent Jamal holding that it was incompetent as the firm Kapda Vyavsay Sangh Kankroli had not been dissolved and therefore the plaintiff was not entitled to bring a suit for rendition of accounts.

That Court, however, decreed the suit for Rs. 350/-against defendant Jamal. Aggrieved by this decision, Dotn parties went up in appeal to the District Judge, Udaipur, who transferred them for disposal to the Senior Civil Judge, Udaipur. The latter allowed Jamal's appeal mainly on the ground that the plaintiff had not asked for any renet against this defendant in his plaint, and, therefore, the trial Court had exceeded its jurisdiction in granting it. As regards the plaintiff's appeal against the other defendants, the learned Senior Civil Judge was inclined to hold that although there was a cessation of the active business of the firm, that by itself did not and could not amount to its dissolution, and in that view of the matter, he upheld the trial Court's conclusion and thus dismissed the plaintiff's suit in toto. It is against this judgment and decree that the plaintiff has now come up to this Court in second appeal.

4. It may be pointed out at once that the dismissal of the suit against Jamal, the plaintiff's assignor, has not been challenged before this Court. The principal question for decision in this appeal, therefore, is whether the partnership in suit had been dissolved as alleged by the plaintiff. For, if it had not been dissolved, the plaintiff could not have brought a suit as an assignee for rendition or accounts of an undissolved partnership.

Section 29 of the Partnership Act clearly governs this matter. This section reads as follows:

'29. (1) A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does not entitle the transferee during the continuance of firm, to interfere in the conduct of business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners.

(2) If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled as against the remaining partners to receive the snare of the assets of the firm to which the transferring partner is entitled, and for the purpose of ascertaining that snare, to an account as from the date of the dissolution.'

The principle behind this section is that when partners enter into a contract of partnership, their normal intention is that their relationship shall exist between themselves and themselves only, and, therefore, no person can be introduced into the partnership as a partner without the consent of all the existing partners. It would indeed ba another matter if the partners choose to agree that it would be open to any one of them to introduce any other person into the partnership in which case such a new comer would also be a partner. But that is admittedly not the case here.

There can however be no objection at law to a partner assigning his right, title and interest in a partnership to another as was done in this case. But such a person by virtue of the provisions contained in Section 29 cannot interfere in the conduct of the business of the firm or require accounts or inspect the books of accounts of the firm during the continuance of the partnership, that is, until dissolution has been brought about, and ail that the assignee is entitled during the continuance of the partnership is to receive the share of profits of the transferring partner, and the transferee must accept the amount of profits agreed to by the partners. The point that deserves to be noted is that the assignment during the continuance of a partnership does not give the assignee a right to claim accounts or to sue for dissolution, in other woras, the assignor continues to remain the partner and the assignee is only entitled to receive the share of the profits due to the assignor. It is only if and when dissolution occurs that the transferee would be entitled as against the remaining partners to ask for accounts as from the date of the dissolution and to receive his share of the assets of the firm to which the transferring partner was entitled on that footing.

5. The basic question which thus arose and arises for decision in this appeal is whether the suit firm stood dissolved as alleged by the plaintiff or it did not. If it did, the plaintiff assignee's suit would be competent, though he would be entitled to an account from the date of the dissolution and to receive his share of the proms on that basis. But if it was not so dissolved, then the plaintiff's suit must fail, because he cannot sue for dissolution or for accounts of an undissolved tirm.

The trial Court after a fairly elaborate discussion or the entire evidence came to the conclusion that the dissolution of the suit firm had not been brought about. THE learned Senior Civil Judge on appeal upheld the same finding, but his discussion of this aspect of the case was rather sketchy and superficial and consequently this Court has not felt assisted by that judgment and had to go into the entire evidence by itself in order to determine whether the finding of the trial Court in this respect is well-founded.

6-9. Now, the plaintiff, apart from himself, examined two more witnesses, namely, P. Ws. Roshanlal and Mannalal to prove that the firm had been dissolved in October or November, 1950, corresponding to Asoj or Kati of Smt. 2007. The evidence of these witnesses establishes the following circumstances:

(1) That the business of the firm had tended to become very slack in the later part of 1S50 owing to cloth having been decontrolled and the consequent fall in prices;

(2) -That the employee of the firm Deopuri had been discharged; and

(3) That the shop at which the business of the firm used to be carried on was vacated, These factors can be taken to be fairly established on the evidence of the defendant Bhanwarlal also.

(His Lordship discussed the evidence of both the sides and continued).

10. In this State of the evidence, I find it impossible to hold that the plaintiff has succeeded in establishing by direct evidence that the suit firm had been agreed to be dissolved by its various partners before the plaintiff brought his present suit on the 3rd December, 1951.

11. The position to which we 'then come Is whether a finding on the question of 'dissolution of the firm should be returned in favour of the plaintiff on the facts which have been held to be established and are set out above.

12. At this place, I should like to briefly review the case law on this aspect of the case. In Haramohan Poddar v. Sudarson Poddar, AIR 1921 Ca] 538 it was held that

'Neither stoppage of business nor refusal of a partner to make further advances can be treated as Dissolution of the firm.'

In Sathappa v. Subrahmanyan, AIR 1927 PC 70, the decision of their Lordships of the Privy Council in effect was that even if a partnership may not exist to carry on any more business, it may well exist for the purpose of realising the assets or to pay off its debts and if so the final dissolution of the partnership cannot be said to have taken place.

13. In Baijnath v. Chhote Lal, AIR 1928 All 58, it was held that although it was true that a mere suspension of business of partnership would not necessarily lead to the conclusion that there had been a dissolution of that partnership, still the cessation of the business coupled with other circumstances might legitimately lead to the inference that the partnership had been dissolved, in this case it was pointed out that the Privy Council case referred to above could not be understood as laying down a general proposition of universal application that a partnership cannot be deemed to have been dissolved till all its outstandings have been realised. With respect, that may be so. But the circumstances upon which the timing of dissolution can be based must be of an unequivocal character and the inference of dissolution from them should be irresistible, and such a case arose in J. sarayya v. Lakshmanaswamy, ILR 36 Mad 185 (PC) in which their lordships of the Privy Council pointed out that when final accounts of the partnership business which had been rendered year by year from 1868 to 1891, ceased in the latter year, and on 12th April 1891 a final account snowing, .the division of both capital and revenue was made out, and the defendants afterwards carried on the business without any interference from the plaintiffs, a very strong presumption arose in favour of the dissolution of the partnership having occurred at the definite date of the year when the account was closed, and, further, taking these facts with the other acts and conduct of the parties and the whole circumstances of the case, the inference in favour of the dissolution became substantially conclusive.

14. Again in Gordhandas v. Bhulabhai, AIR 1932 Bom 316 it was held that a dissolution of a partnership cannot necessarily be inferred from the circumstance that it is unable to pay its growing liabilities nor from the further circumstance that the business was stopped on a certain date and that dissolution must be established from circumstances leading clearly to such an inference,

15. Again in Gundayya v. Siddappa, AIR 1937 Mad 599 it was held that the mere fact that after a particular date no further business was done would not amount to a dissolution of the partnership.

16. The next important case to which I would like to refer is Vazirbhai Sultanbhai v. Gadmal Nathmal, AIR 1940 Bom 263. The facts of this case offer a fairly close parallel to the case before me. The proved or admitted facts in this case were these:

(1) that there was no fresh business done after September/October, 1924;

(2) that the shop which was rented by the partnership was closed and surrendered to the landlord at about the same time;

(3) that the financial position of the firm was difficult and the plaintiff was disinclined to work and attend to the business, and .

(4) That the defendant was left with the work of selling the goods, which had remained unsold, and he also attended to the recovery of outstandings. On these facts, Kania J. as he then was, came to the conclusion that although there was evidence indicating clearly that the business of the partnership had stopped, there was no evidence of dissolution or intention on the part of either party to terminate the legal relation or partnership.

17. Again in Durga Prosad v. Anardeyi Sethani, AIR 1947 Cal 75, it was held that cessation of active Business does not amount to dissolution of a firm.

18. From the foregoing review of the case law, the principle that emerges is that where dissolution by agreement is put forward as a foundation for a suit for accounts, a mere closing of the business or to carry on active business on behalf of or by the partnership or the failure of some of the members thereof to take interest in its affairs, or the mere vacating of the shop where the business was carried on or the discharge of its servants would not be enough to constitute 'dissolution'. For the firm may still continue its existence in order to recover its outstandings or to pay off its debts, and, if so, the jural relation between the various partners would still subsist therefore whether dissolution of a firm has been brought about or not would, in the ultimate analysis depend on the intention of the parties and where there is no document in the shape of a public notice or otherwise evidencing such intention, the same will have to be gathered from the facts and circumstances of a given case and if the collective effect thereof should unequivocally and unmistakably lead to the inference of dissolution, then such a result may well be inferred. It must also be borne in mind in this connection that according to the Indian law of Partnership, mere assignment by a partner of his entire interest in the partnership to a stranger does not and cannot have the consequence of disrupting a partnership business.

19. Applying the test which has been enunciated above to the instant case, 1 am afraid, I find it not a little difficult to accept the submission that the firm with which we are concerned here was dissolved in 1950 as alleged by the plaintiff. The direct evidence of the dissolution lay agreement which I have discussed at length above is not at all good or worthy of credence. Then the circumstantial evidence to prove dissolution, which has Been offered, by the plaintiff, is rather weak and in any event it is not strong enough to sustain a conclusive inference of dissolution, particularly in the absence of any effective cross-examination of the defendant Bhanwarlal with reterence to the account-books of the partnership which he was always willing to produce. This defendant unequivocally stated that he had been selling the goods of the partnership even after 1950 and has been crediting the sale proceeds thereof to the account of the partnership in its books. This evidence has not been shaken in any way, and I see no cogent reasons to disbelieve it.

That being so, the position boils down to this that the plaintiff assignee here sues for rendition of accounts of an undissolved partnership. I may in passing also point out that the plaintiff could not and should not have sued for the recovery of a specific sum of money when he was on his own showing claiming a rendition of accounts.

Be that as it may, Section 29 of the Partnership ACT, which I have set out in extenso above, effectually bars the plaintiff's action and he could not have filed a suit tor accounts of an undissolved partnership or even sued for dissolution. The plaintiff's suit must, therefore, tan.

I may add, however, that if and when this firm is dissolved, it would be open to the plaintiff assignee of Jamal's interest in the partnership to raise his claim against the remaining partners to receive the share of the assets to which his transferor was entitled and for the purpose of ascertaining that share to an account as from the date of the dissolution.

20. The result is that this appeal fails and mustbe dismissed. Having regard to all the circumstances, however, I would make no order as to costs of this appeal,leave to appeal is refused.


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